Taxation Section: Michigan Tax Lawyer January 1985
MICHIGAN TAX LAW jOURNAL
Volume 11
UNIVERSlfY OF DETROIT
Issue Number 1
January-March 1985
TABLE OF CONTENTS SECTION MATI'ERS Subscription Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Members of Section Council ............................................ iii Roster of Taxation Section ............................................. iv MINUTES
Committee on Corporations - January 17, 1985 •.••.••.••..••..•..••...•••.• 1 Committee on Practice and Procedure -January 22, 1985 ••.•••..••••.•••.••• 3 Committee on Council - January 24, 1985 •.•.••..•..•.•••.••.•..•••.•..•.• 5 Committee on Employee Benefits .... February 6, 1985 •.••..•..••.•..••....•• 11 Committee on Partnership Taxation- February 12, 1985 .••.••..••••..••.•.• 14 Committee on Estates and Trusts.- March 5, 1985 ••..••.•.••.••..•..•.•... 16 Committee on Practice and Procedure - March 16, 1985 ••..•..•.•...••.•..• 20 Committee on State and Local Tax - March 28, 1985 ••.••.•..••.••.••••...• 23 ERRATA
Correction of 10 MITax L.J. No.5 ...................................... 29
Notice: Due to the size of the Minutes from the IRS-Bar Liaison Meeting of November, 1984, they are not being published. However, anyone interested in obtaining a copy can get one by writing to the Journal Chairperson:
Andrew M. Savel Comerica Bank-Detroit Detroit, MI 48275-1037
i
llniversil~ of Detroit 1877
65tE. Jeffers~m Avenue, Detroit, Michigan 48226
Telephone: (313) 961-5444
May 15, 1985
Your .Editors are pleased to present this first issue of volume 11 in our new easier-to-read format. After a sampling of opinio.n among members of the Sect ion, and consul tat ion with our printers, we decided to go to the larger format in the hope that it. would both increase the readability of our magazine, and would ~lso facilitate storage of back issues since they can now be filed in a standard three-ring binder. We would appreciate any ·comments you might have on this new format and layout. Becaus~ of a large number. of announcements and Section matters, we will not present any articles or case digests in the current issue. Our schedule calls for publication of Issue No. 2, which will carry several substantive articles, within a very short time. we will continue to strive to bring the members of the Section the most interesting and current Tax Law topics possible. ic.
·As always, suggestions, criticisms, suggestions for potential topics, and manuscripts may be sent to the attention of the Managing Editor, Michigan Tax Law Journal, c/o University of Detroit School of Law, 651 East Jefferson Avenue, Detroit, ~ichigan 48226.
ANDREW M. SAVEL Section Chair PATRICK A. KEENAN Professor of Law and Editor in Chief CHARLES W. LOTZAR Managing Editor ··.1
MICHAEL J. ASHER Associate Editor
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STAFF Almeda F. Russell Mark A. Armitage Colleen M. Broderick John M. Cilmi Daniel J. Dingeman Tracy.L. Hackman William H. Irving Robert G. Lewandowski, Esq. Loretta Lewins-Peck Steven A. Matta James M. Novara David L. Powers Janice M. Radlick Thomas M. Rath Richard G. Raymond Dawn Patterson Vyvyan
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TAXATION SECTION STATE BAR OF MICIDGAN CHAIRPERSON ANDREW M. SAVEL Comerica, Inc. 211 W. Fort Street Detroit, MI 48226 (313) 222-3577 SECRETARY-TREASURER DONALD M. LANSKY 1400 American Center Southfield, MI 48034 (313) 355-5000
VICE-cHAffiPERSON PETER S. SHELDON 121 E. Allegan Street Lansing, MI 48933 (517) 371-1730
CO UNCIT.
C. RICHARD ABBOTT 1840 Buhl Building Detroit, MI 48226 (313) 963-2500
JOHN J. COLLINS, JR. 300 Wabeek Building Birmingham, MI 48012 (313) 258-3016
JAMES C. BRUINSMA 800 Calder Plaza Bldg. Grand Rapids, MI 49503 (616) 459-8311
PAMELA CLEMENS HARTWIG 3rd Floor, 111 S. Main St. Ann Arbor, MI 48104 (313) 665-6595
STEPHEN I. JURMU 313 S. Washington Square Lansing, MI 48933 (517) 372-8050
WILLIAM J. SIKKENGA 1060 Ford Motor Co. WHQ The American Road Dearborn, MI 48121 (313) 322-3534
STEPHEN R. KRETSCHMAN 900 Old Kent Bldg. Grand Rapids, MI 49503 (616) 459-6121
MICHAEL L. STEFANI 1650 W. Big Beaver Road Suite 200-B Troy, MI 48084 (313) 649-1100
PAULL. B. MCKENNEY suite 2370 400 Renaissance Center Detroit, MI 48243 (313) 259-7700
EX-QFFICIO EUGENE A. GARGARO, JR. 400 Renaissance Center, 35th Floor Detroit, MI 48243 (313) 568-6687
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TAXATION SECTION STATE BAR OF MICffiGAN COMMITTEE ON CORPORATIONS MINUTES OF MEETING JANUARY 17, 1985
COMMITTEE MEMBERS PRESENT Roger Cook John M. Dankovich Howard J. Gourwitz Jack M. Hires Sherman Hirschman Anthony llardi, Jr.
Gary M. Lambert Jeffrey A. Levine Leslie Lindell Michael 0. Love Tom Mies Robert E. Miller
William Sikkenga Stuart Sinai Kenneth J. Sorensen Laurence A. Tunney David L. Turner Ted Vogel
Chairperson William Sikkenga called the meeting to order at 3:10 p.m., January 17, 1985. Jack M. Hires took minutes. Subcommittees Members discussed whether there should be subcommittees. The consensus was that subcommittees should be formed. Members formed subcommittees intended to be permanent on Subchapter C (Chairperson, Roger Cook; Members - J. Levine, D. Turner, S. Sinai, T. Vogel, A. llardi, H. Gourwitz). and Subchapter S (Chairperson, G. Lambert; Members- T. Mies, J. Hires, K. Sorensen). Members also formed two temporary subcommittees to prepare presentations for the next Committee meeting and then disband. They are Project Subcommittee on Imputed Interest and Related Problems (Chairperson, S. Sinai; Members J. Dankovich, R. Miller, M. Love) and Project Subcommittee on Buy-SelL Agreements and Golden Parachutes (Chairperson, H. Gourwitz; Members L. Tunney, J. Levine, J. Dankovich). Members emphasized that everyone interested in participating in a subcommittee should immediately contact the subcommittee Chairperson. Subcommittees will begin their activities promptly. Meetings Members discussed Committee meetings and concluded that quarterly meetings were desirable. One of the meetings should be with the Annual State Bar of Michigan Meeting. The other three should be in January, May and July. The location of the January, May and July meeting will switch between the Detroit area and outstate. The Chairperson will poll members for the preferred location of the next meeting, which is set for Thursday, May 2, 1985, at 3 p.m. The Chairperson will notify members of the location through invitation to the meeting.
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The Chairperson will coordinate the agenda of the May 2 meeting with the subcommittee Chairpersons. Subcommittees will give presentations on matters of current interest. The members discussed how Committee projects will be published. They concluded that outlines of subcommittee presentations should be sent to Committee members along with minutes of Committee meetings. In addition, the Chairperson will discuss with the Tax Council the publication of subcommittee papers in the Michigan Tax Law Journal and the Michigan State Bar Journal, and report back to the membership.
BALLOT Where should we hold the May 2, 1985, meeting?
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[ ]
Detroit Southfield Lansing Other
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Send to: W. Sikkenga, Room 1062, The American Road, Dearborn, MI 48121
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TAXATION SECTION STATE BAR OF MICIITGAN COMMITTEE ON PRACTICE AND PROCEDURE MINUTES OF MEETING JANUARY 22, 1985
The initial meeting of the Committee on. Practice and Procedure was held at the law offices of Dickinson, Wright, Moon, Van Dusen & Freeman commencing at 9:00 a.m. on Tuesday, January 22, 1985. COMMITTEE MEMBERS PRESENT Richard Daguanno Sydney D. Goodman George J. Haddad Gerald Klein Robert G. Lewandowski
Sean C. McCormick Robert E. Miller Leon M. Schurgin Peter S. Sheldon, Chairperson Patrick R. VanTiflin
1. Introduction: After members were introduced, each was given an opportunity to outline his practice interest and background. A general discussion followed about how the committee should function. Preliminary thinking is that it should function as follows:
(a) Individual members or subcommittees of several members will be primarily responsible for investigating and reporting to the committee on matters of practice or procedure that are deemed to be of interest at the federal, state or local level. (b) Written reports of the individual or subcommittee will be made available to committee members and, where appropriate, to other members of the Bar through Bar Journal or other publications. (c) There will be four meetings of the committee each year. Since each year commences on October 1 and ends September 30, and since the committee structure was only recently established, a third meeting sometime in May of this year and a fourth meeting sometime in September of this year are probable. Members are invited to advise the Chairperson about their preference of meeting times and places. 2. Potential Projects: Among items of interest that may give rise to projects the committee may elect to undertake are the following: (a) The Tax Court practice of requesting extensive briefs in advance of hearings and its disinclination to grant continuances; (b)
Procedures relating to civil and criminal compliance;
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(c) Concern about the practice of law by non-attorneys- Circular 230; (d) Concerns at the State level about investigating cases involving alleged fraud; (e) Choice of forum at the State level for taxpayers having disputes with the Michigan Department of Treasury; problems concerning the magnitude of Tax Tribunal filing fees and the Tribunal's inability to publish decisions of precedential or otherwise widespread interest; and , (f) Problems concering Internal Revenue Service use of its automated collection system. The above are not the only topics the committee may wish to address this year, and the Chairperson indicated that he would solicit other suggestions from members of the committee who did not attend this meeting. 3. Appointment of Subcommittee on Tax Tribunal: Because of the funding mechanism that supports the Tax Tribunal, filing fees of unparalleled size are being assessed in connection with business tax and property tax matters. In addition, very few opinions and decisions of the Tax Tribunal in the business tax area are being published - to the detriment of tax practitioners and courts. Since a legislative solution to this problem may be the only answer, it was determined that steps should be taken to appoint a subcommittee to review these problems and to suggest possible solutions. A three-person subcommittee, chaired by Sydney Goodman and staffed also by Patrick VanTiflin and Peter Sheldon, will review these Tax Tribunal matters. They will formulate a position and suggest action to the committee at its next meeting. 4. Legislative Matters: The Chairperson then reported on a new function of the committee - monitoring legislation at the federal and state level. He noted that the committee will be asked to: (a) Identify new legislation for its application, particularly in problem areas; (b) React to proposed legislation and formulate, where appropriate, positions concerning it; and (c) Pass by the Tax Council, or at least its Chairperson, any position the committee desires to take on the proposed legislation. 5. Next Meeting: The next meeting of the Council is scheduled for Saturday, March 16, 1985, at 10:00 a.m. at the offices of Schurgin, Rundell & Rosenberg, 29777 Telegraph Road, Southfield, Michigan.
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TAXATION SECTION STATE BAR OF MICmGAN COMMITTEE ON COUNCU. MINUTES OF MEETING JANUARY 24, 1985
A Regular meeting of the Council of the Taxation Section of the State Bar of Michigan was held at Comerica Bank-Detroit, Detroit, Michigan, on Thursday, January 24, 1985, commencing at 9:30a.m. COUNCIL MEMBERS PRESENT C. Richard Abbott James C. Bruinsma John J. Collins, Jr. Eugene A. Gargaro, Jr. Stephen I. Jurmu
Donald M. Lansky Paul L. B. McKenney Andrew M. Savel Peter S. Sheldon William J. Sikkenga NON-MEMBERS PRESENT
Patrick A. Keenan,
University of Detroit -School of Law Editor in Chief, Michigan Tax Law Journal David M. Rosenberger, Employee Benefits Committee Chairperson MINUTES Reading of the minutes of the October 11, 1984, regular meeting of the Council was waived. Copies of the minutes were circulated to the Council members present. TREASURER'S REPORT Mr. Lansky reported that as of December 31, 1984, total receipts for the fiscal year to date were $18,280 and total disbursements for that same period were $2,438.59, leaving a fund balance of $11,627.41 after taking into account an opening furid balance of ($4,214). COMMITTEE REPORTS 1.
Tenth Annual Federal and Michigan Tax Institute.
Mr. McKenney reported the following: A.
The Probate Section did not want to share their annual meeting with us;
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B.
ICLE indicated that neither May nor June would be a good time for the Institute, and that the best time still appeared to be in the fall; and
C.
The planning committee consisting of Dick Abbott, Jim Bruinsma, Andy Savel, and Paul McKenney would meet immediately after the Council meeting to plan the Tenth Annual Institute.
Discussions continued on the format of the Institute. Some of the ideas were (a) strictly a Tax Reform Act, (b) same format as prior years, or (c) have it tied in with the State Bar Association Annual Meeting. 2.
1985 State Bar Journal - Tax Issue.
Mr. Bruinsma reported that the tax law issue of the State Bar Journal for 1985 is scheduled to be published in October and that articles must be submitted by June 15, 1985. The articles should be oriented toward the members of the State Bar of Michigan as a whole, rather than tax practitioners. Each committee of the Tax Section may want to provide at least one article as part of its activities for the current year. Mr. Savel will send a letter to each Chairperson requesting that an article be submitted for publication in the State Bar Journal. 3.
1985 Tax Essay Contest.
Mr. Lansky reported that no articles had been received and that the response was not favorable as far as the essays were concerned. The members decided to extend the deadline to March 1, 1985, and to contact the law schools to see if any essays were in progress. Methods of improving student interest in the contest were discussed also. 4.
Tax Court Luncheons.
Mr. Abbott reported that the next Tax Court Luncheon will be at the University Club, Detroit, Michigan, on Tuesday, March 5, 1985.~ The guest of honor will be United States Tax Court Judge, Charles E. Clapp, II. There will be a cash bar reception at 12:15 p.m., with the luncheon beginning at 12:45 p.m. The cost will be $6.00, payable at the door. 5.
Bar Liaisons.
Mr. Abbott reported the following: A.
He contacted Hugh Makens of the Corporation Section who felt that more information and comments were needed on proposed Federal tax legislation by Michigan lawyers. Further, he was interested in the possibility of coordinating the various Sections to increase the communication with appropriate Senators and Representatives. Towards that end he indicated that their next meeting will be held February 16, 1985, in Grand Rapids and invited someone from the Tax Section to attend. We concluded that Mr. Jurmu will attend the meeting. 6
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He also indicated that as part of the proposed Strategic Fund by the Governor a number of tax issues are involved in the so-called stimulation of business by the State of Michigan and that the input of the Tax Section would be very important in this process. It was concluded that Mr. Jurmu and Mr. Van Til would coordinate this effort.
6.
B.
Mr. Bromberg of the Real Property Section expressed the willingness of the Section to provide us with any information or assistance that they could for the structuring of our Committees based on the success of their committee process over the past years.
C.
Mr. Rasmussen of the Probate Section wishes to establish a committee to pursue legislation eliminating the long delay in the collection of the · Michigan Inheritance Tax, and especially to decentralize the Lansing collection process. We concluded that Allan Claypool will work with Sue Westerman of the Probate Section to coordinate the possible drafting of the legislation.
D.
There was no response from the Administrative Law Section.
Legislative Update.
Mr. Jurmu indicated that a number of Bills had been passed at the end of December, of which the following appeared to be significant: A.
House Bill 5114, which broadens the group of people who may disclaim for purposes of Michigan Inheritance Tax to include the Personal Representative;
B.
Senate Bill 854, which broadens the investment vehicles in which trustees can invest;
C.
Senate Bill 876, which coordinates Federal and State tax issues. to amend the definition of the Internal Revenue Code as it existed in November of 1984; and
D.
1984 Public Act 377, which, was really a Probate Bill, pertains to the disposition of tangible personal property by a separate writing signed by the 'T'estator. Mr. Savel indicated that there were no new developments concerning the Statutory Will, but it was anticipated that it would be reintroduced. No one seemed to have any problem with the passage of the Bill. A discussion then ensued about ways in which to increase the visibility of the Taxation Section at the State and National level. The following suggestions were made:
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(1) The legislators could be provided a list of attorneys willing to review legislation. It was recommended that each of the Committees should discuss and consider the feasibility of their Committees getting involved with the legislative process. (2) The continued publication in State and National Journals was highly recommended. (3) It was recommended that Mr. Savel indicate to various U.S; Senators and Representatives the willingness of the Taxation Section to comment and offer its technical assistance on proposed legislation. Mr. Keenan suggested that a complimentary issue of the Tax Law Journal could be provided to each of the representatives. 7.
Amicus Brief.
Mr. Gargaro reported that the Amicus Brief had been filed on January 4, 1985, and that oral arguments were to be heard on January 9, 1985. 8.
Tax Law Journals.
The future of the publication of Tax Tribunal decisions was then discussed~ The Tribunal asked us to help disseminate decisions as the Tribunal and Westlaw had done in the past. Mr. Sheldon reported that his committee appointed a subcommittee to discuss with the Tax Tribunal the publication of the decisions. The sub-committee will report to us on its progress. Members concluded that the Council could not subsidize the publication of the decisions, but will work with the judges to eliminate the concerns raised by Judge Miller. Next, the scope and direction of the Tax Law Journal was discussed. Mr. Savel was concerned with the cost of each issue. The most recent issue cost approximately $4,000. He then asked whether the journal should become a newsletter consisting of only articles, or follow the same format, and how students could become more involved. Mr. Keenan suggested that possibly a student could be appointed to each committee and assist in the researching and writing of articles to be published in the Tax Law Journal or in the issue of the State Bar Journal. Mr. Keenan also inquired whether the telephone directory should be continued and we concluded that it should be since it benefited the Section. 9.
MBA-MACPA Joint Seminars.
In Mr. Stefani's absence, Mr. Savel reported that the conference would be at Roma's of Bloomfield on June 13, 1985, and that it would once again consist of speakers in the morning and a workshop forum in the afternoon. It also was reported that the conference will have more of a professional practice orientation, than a technical tax focus. Further, that the mailings would not be limited to Taxation members only but to all attorneys in the Wayne, Oakland and Macomb area in hope that more attorneys could be attracted to the conference.
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10. 1985 Annual Tax Section Meeting (50th Anniversary Meeting) In Ms. Hartwig's absence, Mr. Savel reported that no new matters developed and reiterated that the main scope of the meeting will be significant developments in each particular Section, and that he hoped an article regarding the history of the Section would be published in the State Bar Journal by each Section. COMMITTEE REPORTS 1.
Corporations.
Mr. Sikkenga reported that the Committee met for the first time on Thursday, January 17, 1985. Attached to these minutes is a copy of the minutes of that meeting. 2.
Employee Benefits.
Mr. Rosenberger reported that the next meeting of the Employee Benefits Committee will be held on February 6, 1985. A copy of the Notice to the members of the Employee Benefits Committee regarding that meeting is attached to these minutes. 3.
Estates and Trusts.
In Mr. Claypool's absence, Mr. Savel reported that no report had been received. 4.
Individual.
In Mr. Kretschman's absence, Mr. Savel reported that the Committee had not yet met, but would in the near future. 5.
Partnership.
Mr. Collins reported that the first meeting of the Committee would be held within the next two weeks so that a report could be presented at the next meeting of the Council. 6.
Practice and Procedure.
Mr. Sheldon reported that the first meeting of the Committee was held on January 22, 1985. Of the 33 member committee, 10 attended, 6 were federally oriented and 4 had a state orientation. Since most of the members were in the Detroit area, the next meeting was scheduled for March 16, 1985, at 10:00 a.m. in Mr. Leon Schurgin's office. It also was concluded that, hopefully, there would be at least four meetings each year. 7.
State/Local.
In Mr. Van Til's absence, Mr. Savel reported that the first meeting of the Committee was scheduled for the near future.
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SPECIAL PROJECTS 1.
House Taxation Committee Technical Working Group.
Mr. Sheldon reported that nothing occurred in 1984, but that Doug Drake is looking for a product in 1985. 2.
IRS Regional Liaison Meeting.
Mr. Savel reported that he had not yet received a report on the liasion meeting attended by Mr. Robert Pierce. It was recommended that Mr. Jurmu attend the meeting next year. NEW BUSINESS Tax Shelter Conference. Mr. Savel reported that the Tax Shelter Conference was held on December 4, 1984. ICLE indicated that approximately 100 people attended and that they would like to run the Conference every December, if possible. NEXT COUNCIL MEETING Mr. Savel reported that the next meeting of the Tax Council will be at the University Club, 1411 East Jefferson Avenue, Detroit, Michigan, on Tuesday, March 5, 1985, at 9:00 a.m. ADJOURNMENT The meeting was adjourned at 12:30 p.m.
Donald M. Lansky Secretary-Treasurer
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON EMPLOYEE BENEFITS MINUTES OF MEETING FEBRUARY 6, 1985
The Winter 1985 meeting of the State Bar of Michigan, Taxation Section, Employee Benefits Committee was held at the Hyatt Regency hotel in Dearborn, Michigan on February 6, 1985. The meeting was called to order at 1:35 P.M. by the Committee Chairperson, David M. Rosenberger of Dykema, Gossett, Spencer, Goodnow & Trigg. Mr. Rosenberger initiated the meeting with a summary of planned Committee activities. He stated the September 1985 issue of the Michigan Bar Journal would be devoted to taxation issues. He asked the membership to contribute an article on employee benefits issues. The deadline for submission of articles for this issue is June 15, 1985. Mr. Rosenberger also announced that the Tax Council of the State Bar had asked that all Taxation Section Committees, including the Employee Benefits Committee, become more active in commenting on state and federal legislation and reguations issues. The Subcommittee on Legislation and Regulations and the membership at large was asked to participate more fully to achieve the goal of developing a national presence similar .to that of the Employee Benefits Committees of the New York and Illinois Bar Association. Subcommittee members Stephen Jurmu and Kalman Goren will act as contacts for the Committee with those involved in the legislative and regulatory process. Before turning the meeting over to the panel of speakers, Mr. Rosenberger announced that the State Bar sample employee benefits plan amendments were being approved by the Employee Plans Division of the Cincinnati, Ohio District Director's Office of the Internal Revenue Service. Copies of these sample amendments are available from Mr. Rosenberger's office at a $15.00 charge to cover copying costs. Finally, the topic for the next meeting, tentatively scheduled for the end of May, is future employee benefits legislation. The first speaker, Ward Randol of Dickinson, Wriqht, Van Dusen & Freeman, discussed new rules for qualified plans for self-employed persons. Mr. Randol compared the history of plans for self-employeds with recent developments. He noted that owner-employees in Keogh plans covering no other participants must now file the Form 5500 series reports, as discussed in IRS Announcement 85-16. The next speakers, Barbara Bart and Keith Oswald of Tne Wyatt Company, discussed the Retirement Equity Act ("REA") provisions concerning participation and spousal benefits. Ms. Bart reviewed the old and the new provisions concerning survivor benefits. Mr. Oswald addressed actuarial cost considerations in planning for amendments to incorporate the changes.
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The next speaker, Kevin Walsh of Dykema, Gossett, Spencer, Goodnow & Trigg, addressed 40l(k) plan developments. Mr. Walsh noted that practitioners have been waiting for regulation on this topic to be finalized for over 3 years. Mr. Walsh addressed the history of 401(k) plans, their comparisons with IRAs, the mechanical nondiscrimination rules and plan investment issues, including fiduciary responsibility and security laws considerations. Jack Schultz, of Plotkin, Yolles, Siegel, Schultz & Polk, discussed qualified domestic relations orders ("QDRO"). Mr. Schultz reviewed provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 ("ERISA") relevant to QDROs. Mr. Schultz also addressed certain administrative compliance considerations including the plan administrator's responsibility to determine the validity of QDROs. The final speaker, Larry Ferguson of Ellis, Talcott, Ohlgren & Ferguson, addressed the REA anti-cutback rules concerning reduction in accrued benefits. Mr. Ferguson noted that REA section 301 had essentially codified the Service's positions in the Revenue Rulings 79-90 and 81-12. All speakers responded to questions from the Committee and at 4:30, with no further business, the meeting was adjourned.
Shawn C. McCormick
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Internal Revenue Service
Department of the Treasury
District Director Person to Contact:
Michigan State Bar Association Taxation Section, Employee Benefits Committee Suite 3000 505 North Woodward Avenue Bloomfield Hills, Michigan
Micheal J. George Telephone Number:
513-684-3947 Refer Reply to:
EP/EO Date:
DEC 2 0 1984
Name of Plan: Michigan State Bar Association Pattern Profit-Sharing Plan
Dear Mr. Rosenberger: We have reviewed the amendments for the above named plan for pre-approval and in our opinion it meets the qualification requirements pertaining to the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984. When submitting future Form 5301 applications incorporating these TEFRA, DEFRA, and REA provisions, please batch (10 or more) submissions and enclose a copy of this letter for each application request. Also, include with each application a listing of any deviations from the approved plan for the adopting employer. We will expedite the processing of these plans if submitted in the near future. Thank you fbr your cooperation. Sincerely yours,
R. C. Schemenauer Chief, EP/EO Division
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TAXATION SECTION STATE BAR OF MICHIGAN COMMITTEE ON PARTNERS I-UP TAXATION MINUTES OF MEETING FEBRUARY 12, 198.5
Chairperson John J. Collins, Jr. called the meeting to order at approximately 9:30a.m. with Mark McGowan acting as Secretary. Despite hazardous road conditions, the following members attended: John J. Collins, Jr. Gregory V. DiCenso Lawrence Elkus Steven Fisher Terry 0. Lang Shawn McCormick
Mark McGowan Edward L. Ruby James S. Serocki George R. Sokoly Joseph W. Thomas Emily Tobias
John presented a list of over 50 attorneys who expressed interest in joining the Committee. Several of them called to express regret at being unable to attend this first meeting because of scheduling conflicts. The establishment of sub-committees was discussed and the following subcommittees, chairpersons and members were agreed upon: LEGISLATION AND REGULATIONS: Shawn McCormick (Chairman), Terry 0. Lang and Gregory V. DiCenso TAX CONSIDERATIONS FOR SERVICE PARTNERS: Lawrence Elkus (Chairman), Edward L. Ruby and Steven Fisher ALLOCATION OF TAX ITEMS: George R. Sokoly BASIS CONSIDERATIONS: Serocki and Emily Tobias
Mark McGowan (Chairman) and
Joseph W. Thomas (Chairman), James S.
Members agreed that each sub-committee should have about 5 members and that committee activities should include the presentation of topics for discussions at Partnership Taxation Committee meetings and the development and publication of appropriate topics in the Michigan Tax Law Journal and other appropriate publications. John stated that an invitation will be made to others who expressed an interest in joining the Committee on Partnership Taxation to join one of the subcommittees.
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John reported that in October of this year the State Bar Journal will publish a special "taxation" issue. Steven Fisher volunteered to begin work on a possible article for publication on tax problems of service partners. Also, Gregory V. DiCenso volunteered to present an appropriate topic at the upcoming Annual Federal and Michigan Tax Institute (co-sponsored by ICLE and the Taxation Section). Contributions to the "Tax Notes" department of the Michigan Bar Journal are also a proper Committee function. The next meeting is scheduled for Tuesday, April 23rd at 8:30 a.m. at the Birmingham offices of Miller, Canfield, Paddock & Stone in the Wabeek Building, 280 West Maple, Birmingham, Michigan - the same location as our first meeting. The committee agreed the meeting will include an open forum for discussion of topics of general interest including specifically the problems associated with a service partner (the subject of Steven Fisher's proposed article for the State Bar Journal), and the effect of a partner's guarantee on basis, a subject to be presented by Joseph W. Thomas. The meeting concluded at approximately 11:30 a.m. Respectfully submitted,
Mark McGowan, Temporary Secretary
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON ESTATES AND TRUSTS MINUTES OF MEETING MARCH 5, 1985
Andrew M. Savel, Chairperson of the Tax Council, indicated that the principal purpose of committee activity was to benefit Taxation Section members. He discussed various tax council activities designed to benefit the membership. Sometimes the Section membership is requested to assist with the drafting or implementation of Michigan tax legislation or procedure. The Tax Council may call upon the assistance of members whose committee participation reflect their experience or interest. Al Claypool noted that one of his objectives was to be able to promote informal discussion of practical problems, continuing education and exchange of ideas. 1. Treasury Department Proposals to the President: Major income tax policy' is expected to take priority over any new legislative changes to the gift and estate tax laws. Nevertheless, those proposals which affect estate planning should not be ignored. An excellent analysis of certain proposals appeared in NBD Trust Division Notes, Winter '85, including:
(a) Proposal to change the state death tax credit to a flat 5% (it now goes as high as 16%), which could create an increased Michigan Inheritance tax burden under the M.I.T. system, and provide a reason for a wealthy individual to change residence to Florida or other states which have a simple "sponge" tax to "soak up" the state death tax credit. (b)
Change the gift tax computation to a "tax inclusive" system.
(c) Redefine when a transfer is complete or incomplete for gift and estate tax purposes, which would upset 70 years of law and regulations. (d) Redefine powers and other concepts traditionally applied to bypass trusts so that many existing trusts would no longer qualify for estate tax exclusion on the second death. 2.
Qualified Plans (QPs): Bob Ketchum discussed:
(a) On March 4 the IRS extended the deadline for amending QPs to September 15th (See Daily Tax Rep. Mr. 4 at p. H-3); (b) Tax traps, such as penalties on early distributions (pre 59 1/2) to owners (5% or more) and for excessive benefits; ~6
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(c) Treasury proposal to eliminate 10 year averaging; (d)
Means of spreading out the income tax;
(e) The question whether a spouse makes a gift by consenting to a payout to a beneficiary other than the spouse; and (f) Whether split-dollar life insurance could be viewed by the IRS as an interest-free loan, subject to TRA '84 provisions. There was also discussion of proposed Michigan legislation to tax lump sum distributions. 3. Potential Sub-Committees/Projects: Members discussed twelve potential committees/projects. Persons in attendance (21) reflected their committee preference/area of interest from a list of 12. Based upon those preferences/areas of interest, I have identified 6 areas of principal interest which I have taken the liberty of designating Estate and Trust (ET) Committees ET-1 through ET-6, with persons interested in each area, as follows: ET-1
1. 2. 3.
4. *5.
ET-2
1. *2.
3.
4. 5. 6.
7.
Payout Alternatives for Qualified Plans: H. Rollin Allen, 1565 Penobscot Building, Detroit, (313) 961-8080 Allan J. Claypool, 313 S. Washington Square, Lansing (517) 372-8050 William C. Fried, 32900 Five Mile Road, Livonia (313) 421-5055 Burton E. Isaacs, 17220 W. 12 Mile, Suite 200, Southfield (313) 557-8300 Robert S. Ketchum, Wabeek Building, Birmingham (313) 496-7576
48226 48933~
48154 48076 49012
Trust and Estate Taxation and Subchapter J: Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 Joseph H. Ehrlich, 755 W. Big Beaver Road, Suite 1900, Troy 48084 (313) 362-4440 Michael 0. Love, Comerica Bank-Detroit, 211 W. Fort, Detroit 48226 (313) 222-5574 George W. Moore, III, P.O. Box 528, Bloomfield Hills 48013 (313) 645-9157 Michael L. Obloy, Manufacturers National Bank, 100 Renaissance Center, 7th Floor, Detroit 48243 (313) 222-7233 Sandra M. Shipper, 2490 First National Building, Detroit 48226 (313) 961-7900 David L. Turner, 800 First National Building, Detroit 48226 (313) 223-3540 17
MICHIGAN TAX LAW JOURNAL
8.
Howard B. Young, P.O. Box 5073, Southfield 48086 (313) 262-1600
ET-3
Clifford, Spousal Remainder and Super Trusts: Joseph H. Ehrlich, 755 W. Big Beaver Road, Suite 1900, Troy 48084 (313) 362-4440 Mary B. Kahn, 400 Renaissance Center, 35th Floor, Detroit 48243 (313) 568-5332 John D. Mabley, 100 Renaissance Center, Suite 3200, Detroit 48243 (313) 259-3232 George W. Moore, III, P.O. Box 528, Bloomfield Hills 48013 (313) 645-9157 Mary T. Schmitt Smith, 215 Westchester, Birmingham 48009 (313) 646-4104 Howard B. Young, P.O. Box 5073, Southfield 48086 (313) 262-1600
l.
2. *3. 4. 5. 6. ET-4
Michigan Inheritance Tax; Tax Computation Form and a Proposal for Administration of Inheritance Tax Matters from Lansing:
1.
H. Rollin Allen, 1565 Penobscot Building, Detroit 48226 (313) 961-8080 Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 James C. Johnston, Jr., 21 E. Long Lake Road, Suite 202, Bloomfield Hills 48013 (313) 645-1630 Michael 0. Love, Comerica Bank-Detroit, 211 W. Fort, Detroit 48226 (313) 222-5574 Kathleen W. Newell, 1200 6th St., 2nd Floor, N. Twr. Detroit 48226 (313) 256-1375 Michael L. Obloy, Manufacturers National Bank, 100 Renaissance Center, 7th Floor, Detroit 48243 (313) 222-7233 Harold R. Oseff, 3000 Town Center, Suite 1800, Southfield 48075 (313) 352-8200 Raymond H. Dresser, Jr., 12 S. Monroe, Sturgis, 49091 (616) 651-3281 Sandra M. Shipper, 2490 First National Building, Detroit 48226 (313) 961-7900 Susan S. Westerman, 500 City Center Building, Ann Arbor· 48104 (313) 761-3780 Everett R. Zack, 1000 Michigan National Tower, Lansing 48933 (517) 482-5800
2. 3. 4. 5. 6. 7. 8. 9. 10. *11. ET-5 1. 2.
-
Annual Probate Court Accountings: Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 James C. Johnston, Jr., 21 E. Long Lake Road, Suite 202, Bloomfield Hills 48013 (313) 645-1630
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MICHIGAN TAX LAW jOURNAL
3.
4. *5.
6. ET-6 1.
2. 3. 4. 5. *6.
Please note Chairperson.
George W. Moore, III, P.O. Box 528, (313) 645-9157 Michael L. Obloy, Manufacturers Renaissance Center, 7th Floor, Detroit Harold R. Oseff, 3000 Town Center, 48075 (313) 352-8200 Andrew M. Savel, Comerica, Inc., 211 (313) 222-3577
Bloomfield Hills 48013 National Bank, 100 48243 (313) 222-7233 Suite 1800, Southfield W. Fort, Detroit 48231
Handling of Closely-held Business Interests in Trusts and Estates: H. Rollin Allen, 1565 Penobscot Building, Detroit (313) 961-8080 Raymond H. Dresser, Jr., 12 S. Monroe, Sturgis (616) 651-3281 William C. Fried, 32900 Five Mile Road, Livonia (313) 421-5055 Burton E. Isaacs, 17220 W. 12 Mile, Suite 200, Southfield (313) 557-8300 Sandra M. Shipper, 2490 First National Building, Detroit (313) 961-7900 David L. Turner, 800 First National Building, Detroit (313) 223-3540
48226 49091 48154 48076 48226 48226
that the asterisk (*) for each committee identifies the
The interest reflected in other areas appears nominal. I am ignoring those areas unless someone contacts me to express an interest in pursuing another committee/project. ET-4 (Michigan Inheritance Tax; Tax Computation Form and a Proposal for Administration of Inheritance Tax Matters from Lansing) and ET-5 (Annual Probate Court Accounts) are similar to previously established Probate Section committees. Andy Savel and I are seeking the approval of Doug Rasmussen (Probate Section Chairperson) to permit these persons to constitute a "joint" committee with the Probate Section. Several of the Persons (including Harold Osaff, Sue Westerman and Everett Zack), whose names are set forth in ET-4 and ET-5, were previously active in these areas as members of the Probate Section. Anyone who desires to become involved with these committee/projects/ interest groups may contact respective chairpersons. The next meeting of the Estates and Trusts Sub-Subcommitee is scheduled for Thursday, May 30, 1985 at 3:00 p.m. at the Michigan Inn, Southfield, Michigan. In the meantime, each Chairperson will have an opportunity (if necessary or desirable) to communicate with the members of each respective committee/interest group. Al Claypool Chairperson 19
MICHIGAN TAX lAW jOURNAL
TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON PRACTICE AND PROCEDURE MINUTES OF MEETING MARCH 16, 1985
A meeting of the Committee on Practice and Procedure was held at the law offices of Schurgin, Rundell & Rosenberg, in Southfield, Michigan, commencing at 10:00 a.m. on Saturday, March 16, 1985. COMMITTEE MEMBERS PRESENT Leon M. Schurgin Peter S. Sheldon, Chairperson
Richard Daguanno Raymond A. Koltys Paul L. B. McKenney
1. House Bill 4204: The first item discussed was House Bill 4204, a Bill designed to reduce interest payable on Tax Tribunal refunds from 12% per year to 9% per year effective April 1, 1985.
After observing that the interest rate payable by delinquent taxpayers is 12%, members agreed that the Committee's position on the Bill should be equivalency between the interest rate on underpayments or delinquencies, on the one hand, and refunds on the other hand. Put another way, if the interest rate on refunds is to be reduced from 12% to 9%, then interest on delinquent taxes should be similarly reduced from 12% to 9%. 2. MCR 2.625: The next item addressed by the Committee was a proposed amendment to MCR 2.625. The amendment would specify that in any civil action the prevailing party would be entitled to actual attorney fees reasonably incurred in the case. Reasons offered in support of the proposed amendment, as set forth in a memorandum that had been circulated among various committees of the Bar, were as follows:
(a) A perception by the public that too many frivolous matters clog our Court system; and the award of actual attorney fees would tend to reduce the initiation of those kinds of claims; (b) Exposure to an award of actual attorney fees would reduce unneccessary discovery; and (c) Settlements of contested cases would be more likely to occur, thus relieving docket pressure. Members were not persuaded by these points. Instead, the Committee view was that the proposed amendment should not be supported for the following reasons:
20
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MICHIGAN TAX LAW jOURNAL
(a) Frivolous claims are already covered by court rules; (b) When Discovery is undertaken for harrassment purposes costs can be assessed even under current court rules; (c) The proposed amendment would likely stifle prosecution of otherwise valid claims in circumstances where the proposed claimant could not risk the possibility that he or she might not prevail, and thus incur attorney fees he or she could not otherwise afford; and (d) The proposed amendment does not appear to address how attorney fees would be awarded where neither party fully prevails. The above comments do not represent a formal position on the proposal, since it was felt that the proposed amendment was better left for formal comment by attorneys and committees more actively engaged in litigation. 3. IRS Automated Collection System: The Chairperson reported the complaint of at least one practicing attorney that the Internal Revenue Service Automated Collection System responds slowly to inquiries, and is incapable of promptly reflecting payments of deficiencies to avoid the continuation of unwarranted collection activities. Several members of the Committee had experienced similar difficulties with the ACS system and the general consensus of the Committee was that whenever one wants to avoid these difficulties, the best course of action is to personally deliver payment to the Internal Revenue Service and observe the actual recording of that payment at the time it is punched into the computer by the Internal Revenue Service. In recognition of frustrations that taxpayers and their counsel may be incurring with the ACS system, it was suggested that an article for the Bar Journal, or some other publication, be prepared. The Chairman offered to explore that possibility. 4. Tax Court Pretrial Procedure: Discussion continued from the first meeting about Tax Court Judge Meade Whittaker's new pretrial orders. The new pretrial orders are designed to induce pract,tioners to prepare well in advance of trials. Although Bar members disagree on the ru1es' advisability, the Committee recommended that a copy of the new pretrial order be disseminated among Bar members, and that other Tax Court judges be contacted by the Committee or the Tax Council to determine whether they will also be adhering to pretrial procedures similar to Judge Whittakers. 5. State Procedures Concerning Sales Tax Evasion Cases: Members observed that criminal investigations on alleged sales tax evasion are not always adequately undertaken by the Department of Treasury. In some instances, actions have been initiated when further investigation would have disclosed no basis for doing so. Notwithstanding dismissal in circumstances where the action clearly should never have been initiated, reputations may be irreparably damaged. After further discussion, Dick Daguanno offered to explore the problem and offer recommendations the Committee might wish to advance.
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MICHIGAN TAX LAW jOURNAL
6. Tax Tribunal Funding: Considerable discussion followed concerning the financial condition of the Tax Tribunal and the funding sources available for its day to day operations. Approximately one half of its funding comes from the assessment of filing fees which, in a given case, can amount to many thousands of dollars. Rea'Iizing that filing fees should not be designed as a primary source for funding a Tribunal or a Court's activities, the Committee agreed that possible legislative solutions should be explored. Several Committee members offered to contact persons who might be able to assist in restructuring Tax Tribunal funding so that less reliance is placed on filing fees. 7. Unauthorized Practice of Law: At the initial meeting of the Council, Robert Miller was concerned with the unauthorized practice of law. The Chairman will contact Mr. Miller and ask him to present to the Committee a proposal to address this problem. 8. New Treasury Proposals: The Chairperson announced that the Tax Council asked each Committee of the Council to review, when appropriate, new Treasury proposals and then comment on aspects which are relevant to each Committee. The members agreed that when more definitive Treasury proposals are announced and disseminated to the public, we would then review them. Presently current Treasury proposals are not sufficiently defined to warrant comment. 9. Next Meeting: The next meeting of the Council is scheduled for Thursday, May 23, 1985, commencing at 8:00 a.m. at the offices of Dickinson, Wright, Moon, Van Dusen & Freeman, 525 North Woodward Avenue, Bloomfield Hills, Michigan.
22
MICHIGAN TAX lAW jOURNAL
TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON STATE AND LOCAL TAX MINUTES OF MEETING MARCH 28, 1985
COMMITTEE MEMBERS PRESENT Ernest Getz Sydney Goodman
Samuel McKim, III Patrick R. Van Tiflin
Larry Van Til
NON-MEMBERS PRESENT Lou Duncan, Dept. of Treasury Fritz Gould, Dept. of Treasury Thomas M. Hoatlin, Asst. Revenue Commissioner Fred Lynch, Dept. of Treasury Susan Work Martin, Revenue Commissioner Paul Oi, Dept. of Treasury Gary Sandborn, Dept. of Treasury Chairman Van Til introduced Michigan's new Revenue Commissioner, Susan Work Martin. She, in turn, introduced herself as an unbridled workaholic, whose background with the Department of Treasury was in the area of municipal finance. She holds an M.B.A. from Michigan State University in the area of accounting and taxation and is pursuing a Ph.D. degree in those areas. She described her most characteristic traits as aggressiveness and a willingness to accept, and indeed, precipitate change. Principal among the objectives identified by Commissioner Martin for the immediate future in leading the Revenue Division are to consolidate Revenue Division activities according to function. She indicated that this may involve adding an additional Assistant Commissioner position to the Revenue Division. She expressed a desire to compile all existing policies, rules, procedures, rulings, historical data and precedents into an organized format so that both practitioners and Revenue Division personnel will have access to the same information dealing with Michigan tax matters. She expressed a desire to work with practitioners in compiling and sharing information which each may have in their possession in making such a compilation of information. In connection with this effort, Commissioner Martin is considering the use of an "information officer" to coordinate the compilation effort, and thereafter to maintain control over continuous updating of information concerning future administrative rules, cases, rulings and procedures. Commissioner Martin noted that inconsistencies had evolved because nine districts, each with their own administrator, had been established around the State of Michigan, and that the autonomy inherent in such decentralization has resulted in certain policy-making inconsistencies. She expressed a desire to bring the district managers back into the centralized management level of the Revenue
23
MICHIGAN TAX LAW jOURNAL
Division and downplay the policymaking activity within districts. The second major area in which Commi:;sioner Martin expressed a keen interest was continued progress toward computerization of the various activities within the Revenue Division. Efforts will be made to streamline the Revenue Division operation in the areas of automated collection and audit selection. The Revenue Division will track developments at the federal level and attempt to keep their computer systems updated in order to correlate, as closely as possible, those federal developments into the Michigan system. Commissioner Martin then invited Paul Oi to comment on sales and use tax developments. Mr. Oi informed the group that the Sales and Use Tax Division is developing position papers, three of which have been finalized and published in the Treasury Advisor, a quarterly publication of the Revenue Division of the Michigan Department of Treasury. He indicated that one position paper on interstate commerce carriers will be finalized and will soon be available. Mr. Oi informed the group that legislation is pending to lift the sunset provision on prepayment of sales tax on gasoline. Prepayment would thus become a permanent feature of the Michigan sales tax on gasoline if this bill passes. He also informed the group that legislation to provide an isolated transactions exemption in the use tax, similar to that which exists in the sales tax, is pending in the House Taxation Committee. As to judicial developments, Mr. Oi informed the group that the Department was acquiescing in the Natural Aggregates case involving the nontaxable billing of transportation charges separately from the sale of goods, and that the Department has acquiesced also in the RCA Service Co case, which held the use tax inapplicable to maintenance charges for personal property. Mr. Oi also made reference to the Klochko Equipment Rental case which allows a leasing company to keep separate . records of rental equipment on which it remits sales tax at the time it is acquired, or use tax upon receipt of the rental payments for the property, so long as the taxpayer keeps separate records relating to those different types of equipment. Commissioner Martin then introduced Fritz Gould, Administrator of the Intangibles and Inheritance Tax Division. Mr. Gould presented the author with a text of prepared comments, presumably to avoid the possibility that he would be misquoted. Other representatives of the Division who were not so courteous to the author of these minutes can expect to be treated less charitably herein. lVIr. Gould indicated that the Chocola case would be treated as not applicable to intangibles tax questions. The position of the Revenue Division is that any cash distribution, regardless of income tax treatment, is considered yield for intangibles tax purposes. With regard to bond funds for intangibles tax purposes, the total amount of dividends received from an investment company (mutual funds) except for unit investment trusts (bond funds) is taxable. Certificate holders of unit investment trusts will be taxed as if they owned the bonds. The bonds which are exempt from Michigan Intangibles Tax retain their status in the hands of certificate holders. In his discussion of where a QTIP election is 706 estate tax return is file an election with the
inheritance tax developments, Mr. Gould advised us that desired for Michigan inheritance tax purposes if no federal required, the personal representative of the estate must Department of Treasury within nine months of the date of
24
MICHIGAN TAX LAW jOURNAL
death. With regard to notices required to be given to the Department of Treasury under §9 of the Michigan Inheritance Tax Act, the Revenue Division has promulgated a new form and instructions for giving the notice. (A copy of the revised form and instructions follow these minutes.) Finally, Mr. Gould advised the group that the Inheritance Tax Division was centralizing the personnel performing the function of making inheritance tax determinations. Rather than having the auditors travel to the Probate Courts around the State, the audit staff is now located in Lansing where all auditing is done. Wayne, Oakland and Macomb Counties are exceptions, due to the volume of inheritance tax determinations those counties perform. Com missioner Martin then introduced Lou Duncan, Administrator of Motor Fuel, Cigarette and Miscellaneous Taxes. Mr. Duncan discussed legislative and judicial developments. The principal development discussed was the settling of the Ford Motor Company case, in which the Department agreed with Ford Motor Company that motor fuels purchased by the automobile manufacturer to place in the tanks of new vehicles shipped out of state will not be subject to motor fuels tax if tax is paid to the state of destination of the motor vehicle. If not, Michigan will impose a tax on the motor fuel in Michigan. This agreement resulted in the disposition of Ford Motor Company's claim for refund of approximately $2 million in motor fuel taxes for the period under litigation. Mr. Duncan also advised the group that the motor fuel tax was formerly calculated on a manual basis with Division personnel manually correlating sales reports from the major oil companies and wholesalers. The Division will now be receiving magnetic tapes of sales information from the oil companies which will be cross-checked by Division computers against reports filed by licensed wholesalers. Exception lists will be created and audits conducted based upon the exception list. Commissioner Martin then introduced Gary Sandborn. Mr. Sandborn advised the group that legislative developments included the Michigan Tax Code update so as to be consistent with Federal Tax Code revisions through the Tax Reform Act of 1984. Mr. Sandborn cautioned the group that many tax return preparers and taxpayers are missing available credits to Michigan income tax, including tax credits related to receipt of ADC benefits, the over 65 tax credit, and the federal credit for the elderly and the disabled. Mr. Sandborn reported that 1099s were issued this year and that magnetic tapes containing that information were furnished to the Internal Revenue Service. Com missioner Martin then introduced Frederick J. Lynch who discussed Single Business Tax developments. In Single Business Tax issues under litigation, Mr. Lynch identified the royalties issue as a continuing difficult issue to resolve and one which is receiving significant attention from the Single Business Tax Division. Mr. Lynch advised that the DISC Commission add back issue was quiet, with Kelvinator and Gibson cases awaiting action by the Michigan Supreme Court on applications for leave to appeal. Mr. Lynch then diagnosed and pronounced the compensation reduction issue officially "dead". He also discussed the Michigan Tax Tribunal decision in the Jones & Laughlin case which allowed direct allocation of the payroll component of the tax base of a multi-state taxpayer where the sales factor of the three factor apportionment formula greatly exceeded the property or payroll factors.
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MICHIGAN TAX LAW jOURNAL
After the foregoing developments were discussed, Commissioner Martin was asked whether an express amnesty program for the payment of taxes without criminal or civil penalties was in place. She identified legislation which had been introduced by Representative Bryan which would waive criminal and civil penalties and allow the Com missioner to waive interest under certain circumstances. However, those in attendance at the meeting agreed that Michigan has maintained an informal amnesty program for many years, but that decisions are still made on a case-by-case basis. Fritz Gould was questioned about the impact which the Michigan Inheritance Tax has in encouraging Michigan retirees to change their legal residence to states not having an inheritance tax. Mr. Gould pointed out that the Michigan Income Tax and the Intangibles Tax are probably also sufficient reasons for people to consider changing their residency, and he thinks that the inheritance tax shares a disproportionate amount of blame for this phenomenon. He also observed that spouses and children don't pay the major portion of the Michigan Inheritance Tax since the tax rates and exemptions applicable to those persons shield them somewhat from the tax. The bulk of the tax revenue is paid by distant relatives, such as nieces, nephews and cousins. Commissioner Martin and Assistant Commission Hoatlin discussed the fact that use of statistical sales and use tax audits, where random sampling of transactions by a taxpayer having numerous transactions is utilized, was being explored and perfected. Commissioner Martin advised the group that a suggestion made by Sam McKim that the State enact legislation authorizing localities to enact local option taxes (taxes other than property or income taxes) was not under active consideration, although it had been discussed as an alternative to the economic plight of some municipalities whose tax bases are shrinking due to the shrinkage of business property tax base and/or flight by income taxpayers. Respectfully submitted,
Patrick R. Van Tiflin, Recording Secretary
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MICHIGAN TAX !A W jOURNAL
ERRATA
We regret that the following information was omitted from Frank Cornelius' article, "Pension Issues in Collective Bargaining", which appeared in 10 MI Tax L.J. No. 5, at p13: p22, last paragraph, after Bencivenga v Teamsters, CCH PPG (WD Pa, 1984), insert:
23,660X
Under Section 301(a)(2) of the Retirement Equity Act of 1984, rewriting ERISA § 204(g), a plan may not be amended after July 30, 1984 (April 1, 1985 for certain collectively bargained plans) to eliminate an early retirement benefit which accrued before the amendment. p26, note 26 should read: UAW v HK Porter Co 114 BNA PR D-1 (ED Mich, 1976).
Volume 11
UNIVERSlfY OF DETROIT
Issue Number 1
January-March 1985
TABLE OF CONTENTS SECTION MATI'ERS Subscription Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Members of Section Council ............................................ iii Roster of Taxation Section ............................................. iv MINUTES
Committee on Corporations - January 17, 1985 •.••.••.••..••..•..••...•••.• 1 Committee on Practice and Procedure -January 22, 1985 ••.•••..••••.•••.••• 3 Committee on Council - January 24, 1985 •.•.••..•..•.•••.••.•..•••.•..•.• 5 Committee on Employee Benefits .... February 6, 1985 •.••..•..••.•..••....•• 11 Committee on Partnership Taxation- February 12, 1985 .••.••..••••..••.•.• 14 Committee on Estates and Trusts.- March 5, 1985 ••..••.•.••.••..•..•.•... 16 Committee on Practice and Procedure - March 16, 1985 ••..•..•.•...••.•..• 20 Committee on State and Local Tax - March 28, 1985 ••.••.•..••.••.••••...• 23 ERRATA
Correction of 10 MITax L.J. No.5 ...................................... 29
Notice: Due to the size of the Minutes from the IRS-Bar Liaison Meeting of November, 1984, they are not being published. However, anyone interested in obtaining a copy can get one by writing to the Journal Chairperson:
Andrew M. Savel Comerica Bank-Detroit Detroit, MI 48275-1037
i
llniversil~ of Detroit 1877
65tE. Jeffers~m Avenue, Detroit, Michigan 48226
Telephone: (313) 961-5444
May 15, 1985
Your .Editors are pleased to present this first issue of volume 11 in our new easier-to-read format. After a sampling of opinio.n among members of the Sect ion, and consul tat ion with our printers, we decided to go to the larger format in the hope that it. would both increase the readability of our magazine, and would ~lso facilitate storage of back issues since they can now be filed in a standard three-ring binder. We would appreciate any ·comments you might have on this new format and layout. Becaus~ of a large number. of announcements and Section matters, we will not present any articles or case digests in the current issue. Our schedule calls for publication of Issue No. 2, which will carry several substantive articles, within a very short time. we will continue to strive to bring the members of the Section the most interesting and current Tax Law topics possible. ic.
·As always, suggestions, criticisms, suggestions for potential topics, and manuscripts may be sent to the attention of the Managing Editor, Michigan Tax Law Journal, c/o University of Detroit School of Law, 651 East Jefferson Avenue, Detroit, ~ichigan 48226.
ANDREW M. SAVEL Section Chair PATRICK A. KEENAN Professor of Law and Editor in Chief CHARLES W. LOTZAR Managing Editor ··.1
MICHAEL J. ASHER Associate Editor
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--
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STAFF Almeda F. Russell Mark A. Armitage Colleen M. Broderick John M. Cilmi Daniel J. Dingeman Tracy.L. Hackman William H. Irving Robert G. Lewandowski, Esq. Loretta Lewins-Peck Steven A. Matta James M. Novara David L. Powers Janice M. Radlick Thomas M. Rath Richard G. Raymond Dawn Patterson Vyvyan
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TAXATION SECTION STATE BAR OF MICIDGAN CHAIRPERSON ANDREW M. SAVEL Comerica, Inc. 211 W. Fort Street Detroit, MI 48226 (313) 222-3577 SECRETARY-TREASURER DONALD M. LANSKY 1400 American Center Southfield, MI 48034 (313) 355-5000
VICE-cHAffiPERSON PETER S. SHELDON 121 E. Allegan Street Lansing, MI 48933 (517) 371-1730
CO UNCIT.
C. RICHARD ABBOTT 1840 Buhl Building Detroit, MI 48226 (313) 963-2500
JOHN J. COLLINS, JR. 300 Wabeek Building Birmingham, MI 48012 (313) 258-3016
JAMES C. BRUINSMA 800 Calder Plaza Bldg. Grand Rapids, MI 49503 (616) 459-8311
PAMELA CLEMENS HARTWIG 3rd Floor, 111 S. Main St. Ann Arbor, MI 48104 (313) 665-6595
STEPHEN I. JURMU 313 S. Washington Square Lansing, MI 48933 (517) 372-8050
WILLIAM J. SIKKENGA 1060 Ford Motor Co. WHQ The American Road Dearborn, MI 48121 (313) 322-3534
STEPHEN R. KRETSCHMAN 900 Old Kent Bldg. Grand Rapids, MI 49503 (616) 459-6121
MICHAEL L. STEFANI 1650 W. Big Beaver Road Suite 200-B Troy, MI 48084 (313) 649-1100
PAULL. B. MCKENNEY suite 2370 400 Renaissance Center Detroit, MI 48243 (313) 259-7700
EX-QFFICIO EUGENE A. GARGARO, JR. 400 Renaissance Center, 35th Floor Detroit, MI 48243 (313) 568-6687
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TAXATION SECTION STATE BAR OF MICffiGAN COMMITTEE ON CORPORATIONS MINUTES OF MEETING JANUARY 17, 1985
COMMITTEE MEMBERS PRESENT Roger Cook John M. Dankovich Howard J. Gourwitz Jack M. Hires Sherman Hirschman Anthony llardi, Jr.
Gary M. Lambert Jeffrey A. Levine Leslie Lindell Michael 0. Love Tom Mies Robert E. Miller
William Sikkenga Stuart Sinai Kenneth J. Sorensen Laurence A. Tunney David L. Turner Ted Vogel
Chairperson William Sikkenga called the meeting to order at 3:10 p.m., January 17, 1985. Jack M. Hires took minutes. Subcommittees Members discussed whether there should be subcommittees. The consensus was that subcommittees should be formed. Members formed subcommittees intended to be permanent on Subchapter C (Chairperson, Roger Cook; Members - J. Levine, D. Turner, S. Sinai, T. Vogel, A. llardi, H. Gourwitz). and Subchapter S (Chairperson, G. Lambert; Members- T. Mies, J. Hires, K. Sorensen). Members also formed two temporary subcommittees to prepare presentations for the next Committee meeting and then disband. They are Project Subcommittee on Imputed Interest and Related Problems (Chairperson, S. Sinai; Members J. Dankovich, R. Miller, M. Love) and Project Subcommittee on Buy-SelL Agreements and Golden Parachutes (Chairperson, H. Gourwitz; Members L. Tunney, J. Levine, J. Dankovich). Members emphasized that everyone interested in participating in a subcommittee should immediately contact the subcommittee Chairperson. Subcommittees will begin their activities promptly. Meetings Members discussed Committee meetings and concluded that quarterly meetings were desirable. One of the meetings should be with the Annual State Bar of Michigan Meeting. The other three should be in January, May and July. The location of the January, May and July meeting will switch between the Detroit area and outstate. The Chairperson will poll members for the preferred location of the next meeting, which is set for Thursday, May 2, 1985, at 3 p.m. The Chairperson will notify members of the location through invitation to the meeting.
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MICHIGAN TAX LAW jOURNAL
The Chairperson will coordinate the agenda of the May 2 meeting with the subcommittee Chairpersons. Subcommittees will give presentations on matters of current interest. The members discussed how Committee projects will be published. They concluded that outlines of subcommittee presentations should be sent to Committee members along with minutes of Committee meetings. In addition, the Chairperson will discuss with the Tax Council the publication of subcommittee papers in the Michigan Tax Law Journal and the Michigan State Bar Journal, and report back to the membership.
BALLOT Where should we hold the May 2, 1985, meeting?
[ ] [ ] [ ]
[ ]
Detroit Southfield Lansing Other
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Send to: W. Sikkenga, Room 1062, The American Road, Dearborn, MI 48121
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MICHIGAN TAX LAW jOURNAL
TAXATION SECTION STATE BAR OF MICIITGAN COMMITTEE ON PRACTICE AND PROCEDURE MINUTES OF MEETING JANUARY 22, 1985
The initial meeting of the Committee on. Practice and Procedure was held at the law offices of Dickinson, Wright, Moon, Van Dusen & Freeman commencing at 9:00 a.m. on Tuesday, January 22, 1985. COMMITTEE MEMBERS PRESENT Richard Daguanno Sydney D. Goodman George J. Haddad Gerald Klein Robert G. Lewandowski
Sean C. McCormick Robert E. Miller Leon M. Schurgin Peter S. Sheldon, Chairperson Patrick R. VanTiflin
1. Introduction: After members were introduced, each was given an opportunity to outline his practice interest and background. A general discussion followed about how the committee should function. Preliminary thinking is that it should function as follows:
(a) Individual members or subcommittees of several members will be primarily responsible for investigating and reporting to the committee on matters of practice or procedure that are deemed to be of interest at the federal, state or local level. (b) Written reports of the individual or subcommittee will be made available to committee members and, where appropriate, to other members of the Bar through Bar Journal or other publications. (c) There will be four meetings of the committee each year. Since each year commences on October 1 and ends September 30, and since the committee structure was only recently established, a third meeting sometime in May of this year and a fourth meeting sometime in September of this year are probable. Members are invited to advise the Chairperson about their preference of meeting times and places. 2. Potential Projects: Among items of interest that may give rise to projects the committee may elect to undertake are the following: (a) The Tax Court practice of requesting extensive briefs in advance of hearings and its disinclination to grant continuances; (b)
Procedures relating to civil and criminal compliance;
3
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(c) Concern about the practice of law by non-attorneys- Circular 230; (d) Concerns at the State level about investigating cases involving alleged fraud; (e) Choice of forum at the State level for taxpayers having disputes with the Michigan Department of Treasury; problems concerning the magnitude of Tax Tribunal filing fees and the Tribunal's inability to publish decisions of precedential or otherwise widespread interest; and , (f) Problems concering Internal Revenue Service use of its automated collection system. The above are not the only topics the committee may wish to address this year, and the Chairperson indicated that he would solicit other suggestions from members of the committee who did not attend this meeting. 3. Appointment of Subcommittee on Tax Tribunal: Because of the funding mechanism that supports the Tax Tribunal, filing fees of unparalleled size are being assessed in connection with business tax and property tax matters. In addition, very few opinions and decisions of the Tax Tribunal in the business tax area are being published - to the detriment of tax practitioners and courts. Since a legislative solution to this problem may be the only answer, it was determined that steps should be taken to appoint a subcommittee to review these problems and to suggest possible solutions. A three-person subcommittee, chaired by Sydney Goodman and staffed also by Patrick VanTiflin and Peter Sheldon, will review these Tax Tribunal matters. They will formulate a position and suggest action to the committee at its next meeting. 4. Legislative Matters: The Chairperson then reported on a new function of the committee - monitoring legislation at the federal and state level. He noted that the committee will be asked to: (a) Identify new legislation for its application, particularly in problem areas; (b) React to proposed legislation and formulate, where appropriate, positions concerning it; and (c) Pass by the Tax Council, or at least its Chairperson, any position the committee desires to take on the proposed legislation. 5. Next Meeting: The next meeting of the Council is scheduled for Saturday, March 16, 1985, at 10:00 a.m. at the offices of Schurgin, Rundell & Rosenberg, 29777 Telegraph Road, Southfield, Michigan.
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TAXATION SECTION STATE BAR OF MICmGAN COMMITTEE ON COUNCU. MINUTES OF MEETING JANUARY 24, 1985
A Regular meeting of the Council of the Taxation Section of the State Bar of Michigan was held at Comerica Bank-Detroit, Detroit, Michigan, on Thursday, January 24, 1985, commencing at 9:30a.m. COUNCIL MEMBERS PRESENT C. Richard Abbott James C. Bruinsma John J. Collins, Jr. Eugene A. Gargaro, Jr. Stephen I. Jurmu
Donald M. Lansky Paul L. B. McKenney Andrew M. Savel Peter S. Sheldon William J. Sikkenga NON-MEMBERS PRESENT
Patrick A. Keenan,
University of Detroit -School of Law Editor in Chief, Michigan Tax Law Journal David M. Rosenberger, Employee Benefits Committee Chairperson MINUTES Reading of the minutes of the October 11, 1984, regular meeting of the Council was waived. Copies of the minutes were circulated to the Council members present. TREASURER'S REPORT Mr. Lansky reported that as of December 31, 1984, total receipts for the fiscal year to date were $18,280 and total disbursements for that same period were $2,438.59, leaving a fund balance of $11,627.41 after taking into account an opening furid balance of ($4,214). COMMITTEE REPORTS 1.
Tenth Annual Federal and Michigan Tax Institute.
Mr. McKenney reported the following: A.
The Probate Section did not want to share their annual meeting with us;
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B.
ICLE indicated that neither May nor June would be a good time for the Institute, and that the best time still appeared to be in the fall; and
C.
The planning committee consisting of Dick Abbott, Jim Bruinsma, Andy Savel, and Paul McKenney would meet immediately after the Council meeting to plan the Tenth Annual Institute.
Discussions continued on the format of the Institute. Some of the ideas were (a) strictly a Tax Reform Act, (b) same format as prior years, or (c) have it tied in with the State Bar Association Annual Meeting. 2.
1985 State Bar Journal - Tax Issue.
Mr. Bruinsma reported that the tax law issue of the State Bar Journal for 1985 is scheduled to be published in October and that articles must be submitted by June 15, 1985. The articles should be oriented toward the members of the State Bar of Michigan as a whole, rather than tax practitioners. Each committee of the Tax Section may want to provide at least one article as part of its activities for the current year. Mr. Savel will send a letter to each Chairperson requesting that an article be submitted for publication in the State Bar Journal. 3.
1985 Tax Essay Contest.
Mr. Lansky reported that no articles had been received and that the response was not favorable as far as the essays were concerned. The members decided to extend the deadline to March 1, 1985, and to contact the law schools to see if any essays were in progress. Methods of improving student interest in the contest were discussed also. 4.
Tax Court Luncheons.
Mr. Abbott reported that the next Tax Court Luncheon will be at the University Club, Detroit, Michigan, on Tuesday, March 5, 1985.~ The guest of honor will be United States Tax Court Judge, Charles E. Clapp, II. There will be a cash bar reception at 12:15 p.m., with the luncheon beginning at 12:45 p.m. The cost will be $6.00, payable at the door. 5.
Bar Liaisons.
Mr. Abbott reported the following: A.
He contacted Hugh Makens of the Corporation Section who felt that more information and comments were needed on proposed Federal tax legislation by Michigan lawyers. Further, he was interested in the possibility of coordinating the various Sections to increase the communication with appropriate Senators and Representatives. Towards that end he indicated that their next meeting will be held February 16, 1985, in Grand Rapids and invited someone from the Tax Section to attend. We concluded that Mr. Jurmu will attend the meeting. 6
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He also indicated that as part of the proposed Strategic Fund by the Governor a number of tax issues are involved in the so-called stimulation of business by the State of Michigan and that the input of the Tax Section would be very important in this process. It was concluded that Mr. Jurmu and Mr. Van Til would coordinate this effort.
6.
B.
Mr. Bromberg of the Real Property Section expressed the willingness of the Section to provide us with any information or assistance that they could for the structuring of our Committees based on the success of their committee process over the past years.
C.
Mr. Rasmussen of the Probate Section wishes to establish a committee to pursue legislation eliminating the long delay in the collection of the · Michigan Inheritance Tax, and especially to decentralize the Lansing collection process. We concluded that Allan Claypool will work with Sue Westerman of the Probate Section to coordinate the possible drafting of the legislation.
D.
There was no response from the Administrative Law Section.
Legislative Update.
Mr. Jurmu indicated that a number of Bills had been passed at the end of December, of which the following appeared to be significant: A.
House Bill 5114, which broadens the group of people who may disclaim for purposes of Michigan Inheritance Tax to include the Personal Representative;
B.
Senate Bill 854, which broadens the investment vehicles in which trustees can invest;
C.
Senate Bill 876, which coordinates Federal and State tax issues. to amend the definition of the Internal Revenue Code as it existed in November of 1984; and
D.
1984 Public Act 377, which, was really a Probate Bill, pertains to the disposition of tangible personal property by a separate writing signed by the 'T'estator. Mr. Savel indicated that there were no new developments concerning the Statutory Will, but it was anticipated that it would be reintroduced. No one seemed to have any problem with the passage of the Bill. A discussion then ensued about ways in which to increase the visibility of the Taxation Section at the State and National level. The following suggestions were made:
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(1) The legislators could be provided a list of attorneys willing to review legislation. It was recommended that each of the Committees should discuss and consider the feasibility of their Committees getting involved with the legislative process. (2) The continued publication in State and National Journals was highly recommended. (3) It was recommended that Mr. Savel indicate to various U.S; Senators and Representatives the willingness of the Taxation Section to comment and offer its technical assistance on proposed legislation. Mr. Keenan suggested that a complimentary issue of the Tax Law Journal could be provided to each of the representatives. 7.
Amicus Brief.
Mr. Gargaro reported that the Amicus Brief had been filed on January 4, 1985, and that oral arguments were to be heard on January 9, 1985. 8.
Tax Law Journals.
The future of the publication of Tax Tribunal decisions was then discussed~ The Tribunal asked us to help disseminate decisions as the Tribunal and Westlaw had done in the past. Mr. Sheldon reported that his committee appointed a subcommittee to discuss with the Tax Tribunal the publication of the decisions. The sub-committee will report to us on its progress. Members concluded that the Council could not subsidize the publication of the decisions, but will work with the judges to eliminate the concerns raised by Judge Miller. Next, the scope and direction of the Tax Law Journal was discussed. Mr. Savel was concerned with the cost of each issue. The most recent issue cost approximately $4,000. He then asked whether the journal should become a newsletter consisting of only articles, or follow the same format, and how students could become more involved. Mr. Keenan suggested that possibly a student could be appointed to each committee and assist in the researching and writing of articles to be published in the Tax Law Journal or in the issue of the State Bar Journal. Mr. Keenan also inquired whether the telephone directory should be continued and we concluded that it should be since it benefited the Section. 9.
MBA-MACPA Joint Seminars.
In Mr. Stefani's absence, Mr. Savel reported that the conference would be at Roma's of Bloomfield on June 13, 1985, and that it would once again consist of speakers in the morning and a workshop forum in the afternoon. It also was reported that the conference will have more of a professional practice orientation, than a technical tax focus. Further, that the mailings would not be limited to Taxation members only but to all attorneys in the Wayne, Oakland and Macomb area in hope that more attorneys could be attracted to the conference.
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10. 1985 Annual Tax Section Meeting (50th Anniversary Meeting) In Ms. Hartwig's absence, Mr. Savel reported that no new matters developed and reiterated that the main scope of the meeting will be significant developments in each particular Section, and that he hoped an article regarding the history of the Section would be published in the State Bar Journal by each Section. COMMITTEE REPORTS 1.
Corporations.
Mr. Sikkenga reported that the Committee met for the first time on Thursday, January 17, 1985. Attached to these minutes is a copy of the minutes of that meeting. 2.
Employee Benefits.
Mr. Rosenberger reported that the next meeting of the Employee Benefits Committee will be held on February 6, 1985. A copy of the Notice to the members of the Employee Benefits Committee regarding that meeting is attached to these minutes. 3.
Estates and Trusts.
In Mr. Claypool's absence, Mr. Savel reported that no report had been received. 4.
Individual.
In Mr. Kretschman's absence, Mr. Savel reported that the Committee had not yet met, but would in the near future. 5.
Partnership.
Mr. Collins reported that the first meeting of the Committee would be held within the next two weeks so that a report could be presented at the next meeting of the Council. 6.
Practice and Procedure.
Mr. Sheldon reported that the first meeting of the Committee was held on January 22, 1985. Of the 33 member committee, 10 attended, 6 were federally oriented and 4 had a state orientation. Since most of the members were in the Detroit area, the next meeting was scheduled for March 16, 1985, at 10:00 a.m. in Mr. Leon Schurgin's office. It also was concluded that, hopefully, there would be at least four meetings each year. 7.
State/Local.
In Mr. Van Til's absence, Mr. Savel reported that the first meeting of the Committee was scheduled for the near future.
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SPECIAL PROJECTS 1.
House Taxation Committee Technical Working Group.
Mr. Sheldon reported that nothing occurred in 1984, but that Doug Drake is looking for a product in 1985. 2.
IRS Regional Liaison Meeting.
Mr. Savel reported that he had not yet received a report on the liasion meeting attended by Mr. Robert Pierce. It was recommended that Mr. Jurmu attend the meeting next year. NEW BUSINESS Tax Shelter Conference. Mr. Savel reported that the Tax Shelter Conference was held on December 4, 1984. ICLE indicated that approximately 100 people attended and that they would like to run the Conference every December, if possible. NEXT COUNCIL MEETING Mr. Savel reported that the next meeting of the Tax Council will be at the University Club, 1411 East Jefferson Avenue, Detroit, Michigan, on Tuesday, March 5, 1985, at 9:00 a.m. ADJOURNMENT The meeting was adjourned at 12:30 p.m.
Donald M. Lansky Secretary-Treasurer
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON EMPLOYEE BENEFITS MINUTES OF MEETING FEBRUARY 6, 1985
The Winter 1985 meeting of the State Bar of Michigan, Taxation Section, Employee Benefits Committee was held at the Hyatt Regency hotel in Dearborn, Michigan on February 6, 1985. The meeting was called to order at 1:35 P.M. by the Committee Chairperson, David M. Rosenberger of Dykema, Gossett, Spencer, Goodnow & Trigg. Mr. Rosenberger initiated the meeting with a summary of planned Committee activities. He stated the September 1985 issue of the Michigan Bar Journal would be devoted to taxation issues. He asked the membership to contribute an article on employee benefits issues. The deadline for submission of articles for this issue is June 15, 1985. Mr. Rosenberger also announced that the Tax Council of the State Bar had asked that all Taxation Section Committees, including the Employee Benefits Committee, become more active in commenting on state and federal legislation and reguations issues. The Subcommittee on Legislation and Regulations and the membership at large was asked to participate more fully to achieve the goal of developing a national presence similar .to that of the Employee Benefits Committees of the New York and Illinois Bar Association. Subcommittee members Stephen Jurmu and Kalman Goren will act as contacts for the Committee with those involved in the legislative and regulatory process. Before turning the meeting over to the panel of speakers, Mr. Rosenberger announced that the State Bar sample employee benefits plan amendments were being approved by the Employee Plans Division of the Cincinnati, Ohio District Director's Office of the Internal Revenue Service. Copies of these sample amendments are available from Mr. Rosenberger's office at a $15.00 charge to cover copying costs. Finally, the topic for the next meeting, tentatively scheduled for the end of May, is future employee benefits legislation. The first speaker, Ward Randol of Dickinson, Wriqht, Van Dusen & Freeman, discussed new rules for qualified plans for self-employed persons. Mr. Randol compared the history of plans for self-employeds with recent developments. He noted that owner-employees in Keogh plans covering no other participants must now file the Form 5500 series reports, as discussed in IRS Announcement 85-16. The next speakers, Barbara Bart and Keith Oswald of Tne Wyatt Company, discussed the Retirement Equity Act ("REA") provisions concerning participation and spousal benefits. Ms. Bart reviewed the old and the new provisions concerning survivor benefits. Mr. Oswald addressed actuarial cost considerations in planning for amendments to incorporate the changes.
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The next speaker, Kevin Walsh of Dykema, Gossett, Spencer, Goodnow & Trigg, addressed 40l(k) plan developments. Mr. Walsh noted that practitioners have been waiting for regulation on this topic to be finalized for over 3 years. Mr. Walsh addressed the history of 401(k) plans, their comparisons with IRAs, the mechanical nondiscrimination rules and plan investment issues, including fiduciary responsibility and security laws considerations. Jack Schultz, of Plotkin, Yolles, Siegel, Schultz & Polk, discussed qualified domestic relations orders ("QDRO"). Mr. Schultz reviewed provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 ("ERISA") relevant to QDROs. Mr. Schultz also addressed certain administrative compliance considerations including the plan administrator's responsibility to determine the validity of QDROs. The final speaker, Larry Ferguson of Ellis, Talcott, Ohlgren & Ferguson, addressed the REA anti-cutback rules concerning reduction in accrued benefits. Mr. Ferguson noted that REA section 301 had essentially codified the Service's positions in the Revenue Rulings 79-90 and 81-12. All speakers responded to questions from the Committee and at 4:30, with no further business, the meeting was adjourned.
Shawn C. McCormick
12
Internal Revenue Service
Department of the Treasury
District Director Person to Contact:
Michigan State Bar Association Taxation Section, Employee Benefits Committee Suite 3000 505 North Woodward Avenue Bloomfield Hills, Michigan
Micheal J. George Telephone Number:
513-684-3947 Refer Reply to:
EP/EO Date:
DEC 2 0 1984
Name of Plan: Michigan State Bar Association Pattern Profit-Sharing Plan
Dear Mr. Rosenberger: We have reviewed the amendments for the above named plan for pre-approval and in our opinion it meets the qualification requirements pertaining to the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984. When submitting future Form 5301 applications incorporating these TEFRA, DEFRA, and REA provisions, please batch (10 or more) submissions and enclose a copy of this letter for each application request. Also, include with each application a listing of any deviations from the approved plan for the adopting employer. We will expedite the processing of these plans if submitted in the near future. Thank you fbr your cooperation. Sincerely yours,
R. C. Schemenauer Chief, EP/EO Division
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TAXATION SECTION STATE BAR OF MICHIGAN COMMITTEE ON PARTNERS I-UP TAXATION MINUTES OF MEETING FEBRUARY 12, 198.5
Chairperson John J. Collins, Jr. called the meeting to order at approximately 9:30a.m. with Mark McGowan acting as Secretary. Despite hazardous road conditions, the following members attended: John J. Collins, Jr. Gregory V. DiCenso Lawrence Elkus Steven Fisher Terry 0. Lang Shawn McCormick
Mark McGowan Edward L. Ruby James S. Serocki George R. Sokoly Joseph W. Thomas Emily Tobias
John presented a list of over 50 attorneys who expressed interest in joining the Committee. Several of them called to express regret at being unable to attend this first meeting because of scheduling conflicts. The establishment of sub-committees was discussed and the following subcommittees, chairpersons and members were agreed upon: LEGISLATION AND REGULATIONS: Shawn McCormick (Chairman), Terry 0. Lang and Gregory V. DiCenso TAX CONSIDERATIONS FOR SERVICE PARTNERS: Lawrence Elkus (Chairman), Edward L. Ruby and Steven Fisher ALLOCATION OF TAX ITEMS: George R. Sokoly BASIS CONSIDERATIONS: Serocki and Emily Tobias
Mark McGowan (Chairman) and
Joseph W. Thomas (Chairman), James S.
Members agreed that each sub-committee should have about 5 members and that committee activities should include the presentation of topics for discussions at Partnership Taxation Committee meetings and the development and publication of appropriate topics in the Michigan Tax Law Journal and other appropriate publications. John stated that an invitation will be made to others who expressed an interest in joining the Committee on Partnership Taxation to join one of the subcommittees.
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John reported that in October of this year the State Bar Journal will publish a special "taxation" issue. Steven Fisher volunteered to begin work on a possible article for publication on tax problems of service partners. Also, Gregory V. DiCenso volunteered to present an appropriate topic at the upcoming Annual Federal and Michigan Tax Institute (co-sponsored by ICLE and the Taxation Section). Contributions to the "Tax Notes" department of the Michigan Bar Journal are also a proper Committee function. The next meeting is scheduled for Tuesday, April 23rd at 8:30 a.m. at the Birmingham offices of Miller, Canfield, Paddock & Stone in the Wabeek Building, 280 West Maple, Birmingham, Michigan - the same location as our first meeting. The committee agreed the meeting will include an open forum for discussion of topics of general interest including specifically the problems associated with a service partner (the subject of Steven Fisher's proposed article for the State Bar Journal), and the effect of a partner's guarantee on basis, a subject to be presented by Joseph W. Thomas. The meeting concluded at approximately 11:30 a.m. Respectfully submitted,
Mark McGowan, Temporary Secretary
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON ESTATES AND TRUSTS MINUTES OF MEETING MARCH 5, 1985
Andrew M. Savel, Chairperson of the Tax Council, indicated that the principal purpose of committee activity was to benefit Taxation Section members. He discussed various tax council activities designed to benefit the membership. Sometimes the Section membership is requested to assist with the drafting or implementation of Michigan tax legislation or procedure. The Tax Council may call upon the assistance of members whose committee participation reflect their experience or interest. Al Claypool noted that one of his objectives was to be able to promote informal discussion of practical problems, continuing education and exchange of ideas. 1. Treasury Department Proposals to the President: Major income tax policy' is expected to take priority over any new legislative changes to the gift and estate tax laws. Nevertheless, those proposals which affect estate planning should not be ignored. An excellent analysis of certain proposals appeared in NBD Trust Division Notes, Winter '85, including:
(a) Proposal to change the state death tax credit to a flat 5% (it now goes as high as 16%), which could create an increased Michigan Inheritance tax burden under the M.I.T. system, and provide a reason for a wealthy individual to change residence to Florida or other states which have a simple "sponge" tax to "soak up" the state death tax credit. (b)
Change the gift tax computation to a "tax inclusive" system.
(c) Redefine when a transfer is complete or incomplete for gift and estate tax purposes, which would upset 70 years of law and regulations. (d) Redefine powers and other concepts traditionally applied to bypass trusts so that many existing trusts would no longer qualify for estate tax exclusion on the second death. 2.
Qualified Plans (QPs): Bob Ketchum discussed:
(a) On March 4 the IRS extended the deadline for amending QPs to September 15th (See Daily Tax Rep. Mr. 4 at p. H-3); (b) Tax traps, such as penalties on early distributions (pre 59 1/2) to owners (5% or more) and for excessive benefits; ~6
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(c) Treasury proposal to eliminate 10 year averaging; (d)
Means of spreading out the income tax;
(e) The question whether a spouse makes a gift by consenting to a payout to a beneficiary other than the spouse; and (f) Whether split-dollar life insurance could be viewed by the IRS as an interest-free loan, subject to TRA '84 provisions. There was also discussion of proposed Michigan legislation to tax lump sum distributions. 3. Potential Sub-Committees/Projects: Members discussed twelve potential committees/projects. Persons in attendance (21) reflected their committee preference/area of interest from a list of 12. Based upon those preferences/areas of interest, I have identified 6 areas of principal interest which I have taken the liberty of designating Estate and Trust (ET) Committees ET-1 through ET-6, with persons interested in each area, as follows: ET-1
1. 2. 3.
4. *5.
ET-2
1. *2.
3.
4. 5. 6.
7.
Payout Alternatives for Qualified Plans: H. Rollin Allen, 1565 Penobscot Building, Detroit, (313) 961-8080 Allan J. Claypool, 313 S. Washington Square, Lansing (517) 372-8050 William C. Fried, 32900 Five Mile Road, Livonia (313) 421-5055 Burton E. Isaacs, 17220 W. 12 Mile, Suite 200, Southfield (313) 557-8300 Robert S. Ketchum, Wabeek Building, Birmingham (313) 496-7576
48226 48933~
48154 48076 49012
Trust and Estate Taxation and Subchapter J: Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 Joseph H. Ehrlich, 755 W. Big Beaver Road, Suite 1900, Troy 48084 (313) 362-4440 Michael 0. Love, Comerica Bank-Detroit, 211 W. Fort, Detroit 48226 (313) 222-5574 George W. Moore, III, P.O. Box 528, Bloomfield Hills 48013 (313) 645-9157 Michael L. Obloy, Manufacturers National Bank, 100 Renaissance Center, 7th Floor, Detroit 48243 (313) 222-7233 Sandra M. Shipper, 2490 First National Building, Detroit 48226 (313) 961-7900 David L. Turner, 800 First National Building, Detroit 48226 (313) 223-3540 17
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8.
Howard B. Young, P.O. Box 5073, Southfield 48086 (313) 262-1600
ET-3
Clifford, Spousal Remainder and Super Trusts: Joseph H. Ehrlich, 755 W. Big Beaver Road, Suite 1900, Troy 48084 (313) 362-4440 Mary B. Kahn, 400 Renaissance Center, 35th Floor, Detroit 48243 (313) 568-5332 John D. Mabley, 100 Renaissance Center, Suite 3200, Detroit 48243 (313) 259-3232 George W. Moore, III, P.O. Box 528, Bloomfield Hills 48013 (313) 645-9157 Mary T. Schmitt Smith, 215 Westchester, Birmingham 48009 (313) 646-4104 Howard B. Young, P.O. Box 5073, Southfield 48086 (313) 262-1600
l.
2. *3. 4. 5. 6. ET-4
Michigan Inheritance Tax; Tax Computation Form and a Proposal for Administration of Inheritance Tax Matters from Lansing:
1.
H. Rollin Allen, 1565 Penobscot Building, Detroit 48226 (313) 961-8080 Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 James C. Johnston, Jr., 21 E. Long Lake Road, Suite 202, Bloomfield Hills 48013 (313) 645-1630 Michael 0. Love, Comerica Bank-Detroit, 211 W. Fort, Detroit 48226 (313) 222-5574 Kathleen W. Newell, 1200 6th St., 2nd Floor, N. Twr. Detroit 48226 (313) 256-1375 Michael L. Obloy, Manufacturers National Bank, 100 Renaissance Center, 7th Floor, Detroit 48243 (313) 222-7233 Harold R. Oseff, 3000 Town Center, Suite 1800, Southfield 48075 (313) 352-8200 Raymond H. Dresser, Jr., 12 S. Monroe, Sturgis, 49091 (616) 651-3281 Sandra M. Shipper, 2490 First National Building, Detroit 48226 (313) 961-7900 Susan S. Westerman, 500 City Center Building, Ann Arbor· 48104 (313) 761-3780 Everett R. Zack, 1000 Michigan National Tower, Lansing 48933 (517) 482-5800
2. 3. 4. 5. 6. 7. 8. 9. 10. *11. ET-5 1. 2.
-
Annual Probate Court Accountings: Harold Catchpole, 1881 First National Building, Detroit 48226 (313) 963-8142 James C. Johnston, Jr., 21 E. Long Lake Road, Suite 202, Bloomfield Hills 48013 (313) 645-1630
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3.
4. *5.
6. ET-6 1.
2. 3. 4. 5. *6.
Please note Chairperson.
George W. Moore, III, P.O. Box 528, (313) 645-9157 Michael L. Obloy, Manufacturers Renaissance Center, 7th Floor, Detroit Harold R. Oseff, 3000 Town Center, 48075 (313) 352-8200 Andrew M. Savel, Comerica, Inc., 211 (313) 222-3577
Bloomfield Hills 48013 National Bank, 100 48243 (313) 222-7233 Suite 1800, Southfield W. Fort, Detroit 48231
Handling of Closely-held Business Interests in Trusts and Estates: H. Rollin Allen, 1565 Penobscot Building, Detroit (313) 961-8080 Raymond H. Dresser, Jr., 12 S. Monroe, Sturgis (616) 651-3281 William C. Fried, 32900 Five Mile Road, Livonia (313) 421-5055 Burton E. Isaacs, 17220 W. 12 Mile, Suite 200, Southfield (313) 557-8300 Sandra M. Shipper, 2490 First National Building, Detroit (313) 961-7900 David L. Turner, 800 First National Building, Detroit (313) 223-3540
48226 49091 48154 48076 48226 48226
that the asterisk (*) for each committee identifies the
The interest reflected in other areas appears nominal. I am ignoring those areas unless someone contacts me to express an interest in pursuing another committee/project. ET-4 (Michigan Inheritance Tax; Tax Computation Form and a Proposal for Administration of Inheritance Tax Matters from Lansing) and ET-5 (Annual Probate Court Accounts) are similar to previously established Probate Section committees. Andy Savel and I are seeking the approval of Doug Rasmussen (Probate Section Chairperson) to permit these persons to constitute a "joint" committee with the Probate Section. Several of the Persons (including Harold Osaff, Sue Westerman and Everett Zack), whose names are set forth in ET-4 and ET-5, were previously active in these areas as members of the Probate Section. Anyone who desires to become involved with these committee/projects/ interest groups may contact respective chairpersons. The next meeting of the Estates and Trusts Sub-Subcommitee is scheduled for Thursday, May 30, 1985 at 3:00 p.m. at the Michigan Inn, Southfield, Michigan. In the meantime, each Chairperson will have an opportunity (if necessary or desirable) to communicate with the members of each respective committee/interest group. Al Claypool Chairperson 19
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON PRACTICE AND PROCEDURE MINUTES OF MEETING MARCH 16, 1985
A meeting of the Committee on Practice and Procedure was held at the law offices of Schurgin, Rundell & Rosenberg, in Southfield, Michigan, commencing at 10:00 a.m. on Saturday, March 16, 1985. COMMITTEE MEMBERS PRESENT Leon M. Schurgin Peter S. Sheldon, Chairperson
Richard Daguanno Raymond A. Koltys Paul L. B. McKenney
1. House Bill 4204: The first item discussed was House Bill 4204, a Bill designed to reduce interest payable on Tax Tribunal refunds from 12% per year to 9% per year effective April 1, 1985.
After observing that the interest rate payable by delinquent taxpayers is 12%, members agreed that the Committee's position on the Bill should be equivalency between the interest rate on underpayments or delinquencies, on the one hand, and refunds on the other hand. Put another way, if the interest rate on refunds is to be reduced from 12% to 9%, then interest on delinquent taxes should be similarly reduced from 12% to 9%. 2. MCR 2.625: The next item addressed by the Committee was a proposed amendment to MCR 2.625. The amendment would specify that in any civil action the prevailing party would be entitled to actual attorney fees reasonably incurred in the case. Reasons offered in support of the proposed amendment, as set forth in a memorandum that had been circulated among various committees of the Bar, were as follows:
(a) A perception by the public that too many frivolous matters clog our Court system; and the award of actual attorney fees would tend to reduce the initiation of those kinds of claims; (b) Exposure to an award of actual attorney fees would reduce unneccessary discovery; and (c) Settlements of contested cases would be more likely to occur, thus relieving docket pressure. Members were not persuaded by these points. Instead, the Committee view was that the proposed amendment should not be supported for the following reasons:
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(a) Frivolous claims are already covered by court rules; (b) When Discovery is undertaken for harrassment purposes costs can be assessed even under current court rules; (c) The proposed amendment would likely stifle prosecution of otherwise valid claims in circumstances where the proposed claimant could not risk the possibility that he or she might not prevail, and thus incur attorney fees he or she could not otherwise afford; and (d) The proposed amendment does not appear to address how attorney fees would be awarded where neither party fully prevails. The above comments do not represent a formal position on the proposal, since it was felt that the proposed amendment was better left for formal comment by attorneys and committees more actively engaged in litigation. 3. IRS Automated Collection System: The Chairperson reported the complaint of at least one practicing attorney that the Internal Revenue Service Automated Collection System responds slowly to inquiries, and is incapable of promptly reflecting payments of deficiencies to avoid the continuation of unwarranted collection activities. Several members of the Committee had experienced similar difficulties with the ACS system and the general consensus of the Committee was that whenever one wants to avoid these difficulties, the best course of action is to personally deliver payment to the Internal Revenue Service and observe the actual recording of that payment at the time it is punched into the computer by the Internal Revenue Service. In recognition of frustrations that taxpayers and their counsel may be incurring with the ACS system, it was suggested that an article for the Bar Journal, or some other publication, be prepared. The Chairman offered to explore that possibility. 4. Tax Court Pretrial Procedure: Discussion continued from the first meeting about Tax Court Judge Meade Whittaker's new pretrial orders. The new pretrial orders are designed to induce pract,tioners to prepare well in advance of trials. Although Bar members disagree on the ru1es' advisability, the Committee recommended that a copy of the new pretrial order be disseminated among Bar members, and that other Tax Court judges be contacted by the Committee or the Tax Council to determine whether they will also be adhering to pretrial procedures similar to Judge Whittakers. 5. State Procedures Concerning Sales Tax Evasion Cases: Members observed that criminal investigations on alleged sales tax evasion are not always adequately undertaken by the Department of Treasury. In some instances, actions have been initiated when further investigation would have disclosed no basis for doing so. Notwithstanding dismissal in circumstances where the action clearly should never have been initiated, reputations may be irreparably damaged. After further discussion, Dick Daguanno offered to explore the problem and offer recommendations the Committee might wish to advance.
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6. Tax Tribunal Funding: Considerable discussion followed concerning the financial condition of the Tax Tribunal and the funding sources available for its day to day operations. Approximately one half of its funding comes from the assessment of filing fees which, in a given case, can amount to many thousands of dollars. Rea'Iizing that filing fees should not be designed as a primary source for funding a Tribunal or a Court's activities, the Committee agreed that possible legislative solutions should be explored. Several Committee members offered to contact persons who might be able to assist in restructuring Tax Tribunal funding so that less reliance is placed on filing fees. 7. Unauthorized Practice of Law: At the initial meeting of the Council, Robert Miller was concerned with the unauthorized practice of law. The Chairman will contact Mr. Miller and ask him to present to the Committee a proposal to address this problem. 8. New Treasury Proposals: The Chairperson announced that the Tax Council asked each Committee of the Council to review, when appropriate, new Treasury proposals and then comment on aspects which are relevant to each Committee. The members agreed that when more definitive Treasury proposals are announced and disseminated to the public, we would then review them. Presently current Treasury proposals are not sufficiently defined to warrant comment. 9. Next Meeting: The next meeting of the Council is scheduled for Thursday, May 23, 1985, commencing at 8:00 a.m. at the offices of Dickinson, Wright, Moon, Van Dusen & Freeman, 525 North Woodward Avenue, Bloomfield Hills, Michigan.
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TAXATION SECTION STATE BAR OF MICIDGAN COMMITTEE ON STATE AND LOCAL TAX MINUTES OF MEETING MARCH 28, 1985
COMMITTEE MEMBERS PRESENT Ernest Getz Sydney Goodman
Samuel McKim, III Patrick R. Van Tiflin
Larry Van Til
NON-MEMBERS PRESENT Lou Duncan, Dept. of Treasury Fritz Gould, Dept. of Treasury Thomas M. Hoatlin, Asst. Revenue Commissioner Fred Lynch, Dept. of Treasury Susan Work Martin, Revenue Commissioner Paul Oi, Dept. of Treasury Gary Sandborn, Dept. of Treasury Chairman Van Til introduced Michigan's new Revenue Commissioner, Susan Work Martin. She, in turn, introduced herself as an unbridled workaholic, whose background with the Department of Treasury was in the area of municipal finance. She holds an M.B.A. from Michigan State University in the area of accounting and taxation and is pursuing a Ph.D. degree in those areas. She described her most characteristic traits as aggressiveness and a willingness to accept, and indeed, precipitate change. Principal among the objectives identified by Commissioner Martin for the immediate future in leading the Revenue Division are to consolidate Revenue Division activities according to function. She indicated that this may involve adding an additional Assistant Commissioner position to the Revenue Division. She expressed a desire to compile all existing policies, rules, procedures, rulings, historical data and precedents into an organized format so that both practitioners and Revenue Division personnel will have access to the same information dealing with Michigan tax matters. She expressed a desire to work with practitioners in compiling and sharing information which each may have in their possession in making such a compilation of information. In connection with this effort, Commissioner Martin is considering the use of an "information officer" to coordinate the compilation effort, and thereafter to maintain control over continuous updating of information concerning future administrative rules, cases, rulings and procedures. Commissioner Martin noted that inconsistencies had evolved because nine districts, each with their own administrator, had been established around the State of Michigan, and that the autonomy inherent in such decentralization has resulted in certain policy-making inconsistencies. She expressed a desire to bring the district managers back into the centralized management level of the Revenue
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Division and downplay the policymaking activity within districts. The second major area in which Commi:;sioner Martin expressed a keen interest was continued progress toward computerization of the various activities within the Revenue Division. Efforts will be made to streamline the Revenue Division operation in the areas of automated collection and audit selection. The Revenue Division will track developments at the federal level and attempt to keep their computer systems updated in order to correlate, as closely as possible, those federal developments into the Michigan system. Commissioner Martin then invited Paul Oi to comment on sales and use tax developments. Mr. Oi informed the group that the Sales and Use Tax Division is developing position papers, three of which have been finalized and published in the Treasury Advisor, a quarterly publication of the Revenue Division of the Michigan Department of Treasury. He indicated that one position paper on interstate commerce carriers will be finalized and will soon be available. Mr. Oi informed the group that legislation is pending to lift the sunset provision on prepayment of sales tax on gasoline. Prepayment would thus become a permanent feature of the Michigan sales tax on gasoline if this bill passes. He also informed the group that legislation to provide an isolated transactions exemption in the use tax, similar to that which exists in the sales tax, is pending in the House Taxation Committee. As to judicial developments, Mr. Oi informed the group that the Department was acquiescing in the Natural Aggregates case involving the nontaxable billing of transportation charges separately from the sale of goods, and that the Department has acquiesced also in the RCA Service Co case, which held the use tax inapplicable to maintenance charges for personal property. Mr. Oi also made reference to the Klochko Equipment Rental case which allows a leasing company to keep separate . records of rental equipment on which it remits sales tax at the time it is acquired, or use tax upon receipt of the rental payments for the property, so long as the taxpayer keeps separate records relating to those different types of equipment. Commissioner Martin then introduced Fritz Gould, Administrator of the Intangibles and Inheritance Tax Division. Mr. Gould presented the author with a text of prepared comments, presumably to avoid the possibility that he would be misquoted. Other representatives of the Division who were not so courteous to the author of these minutes can expect to be treated less charitably herein. lVIr. Gould indicated that the Chocola case would be treated as not applicable to intangibles tax questions. The position of the Revenue Division is that any cash distribution, regardless of income tax treatment, is considered yield for intangibles tax purposes. With regard to bond funds for intangibles tax purposes, the total amount of dividends received from an investment company (mutual funds) except for unit investment trusts (bond funds) is taxable. Certificate holders of unit investment trusts will be taxed as if they owned the bonds. The bonds which are exempt from Michigan Intangibles Tax retain their status in the hands of certificate holders. In his discussion of where a QTIP election is 706 estate tax return is file an election with the
inheritance tax developments, Mr. Gould advised us that desired for Michigan inheritance tax purposes if no federal required, the personal representative of the estate must Department of Treasury within nine months of the date of
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death. With regard to notices required to be given to the Department of Treasury under §9 of the Michigan Inheritance Tax Act, the Revenue Division has promulgated a new form and instructions for giving the notice. (A copy of the revised form and instructions follow these minutes.) Finally, Mr. Gould advised the group that the Inheritance Tax Division was centralizing the personnel performing the function of making inheritance tax determinations. Rather than having the auditors travel to the Probate Courts around the State, the audit staff is now located in Lansing where all auditing is done. Wayne, Oakland and Macomb Counties are exceptions, due to the volume of inheritance tax determinations those counties perform. Com missioner Martin then introduced Lou Duncan, Administrator of Motor Fuel, Cigarette and Miscellaneous Taxes. Mr. Duncan discussed legislative and judicial developments. The principal development discussed was the settling of the Ford Motor Company case, in which the Department agreed with Ford Motor Company that motor fuels purchased by the automobile manufacturer to place in the tanks of new vehicles shipped out of state will not be subject to motor fuels tax if tax is paid to the state of destination of the motor vehicle. If not, Michigan will impose a tax on the motor fuel in Michigan. This agreement resulted in the disposition of Ford Motor Company's claim for refund of approximately $2 million in motor fuel taxes for the period under litigation. Mr. Duncan also advised the group that the motor fuel tax was formerly calculated on a manual basis with Division personnel manually correlating sales reports from the major oil companies and wholesalers. The Division will now be receiving magnetic tapes of sales information from the oil companies which will be cross-checked by Division computers against reports filed by licensed wholesalers. Exception lists will be created and audits conducted based upon the exception list. Commissioner Martin then introduced Gary Sandborn. Mr. Sandborn advised the group that legislative developments included the Michigan Tax Code update so as to be consistent with Federal Tax Code revisions through the Tax Reform Act of 1984. Mr. Sandborn cautioned the group that many tax return preparers and taxpayers are missing available credits to Michigan income tax, including tax credits related to receipt of ADC benefits, the over 65 tax credit, and the federal credit for the elderly and the disabled. Mr. Sandborn reported that 1099s were issued this year and that magnetic tapes containing that information were furnished to the Internal Revenue Service. Com missioner Martin then introduced Frederick J. Lynch who discussed Single Business Tax developments. In Single Business Tax issues under litigation, Mr. Lynch identified the royalties issue as a continuing difficult issue to resolve and one which is receiving significant attention from the Single Business Tax Division. Mr. Lynch advised that the DISC Commission add back issue was quiet, with Kelvinator and Gibson cases awaiting action by the Michigan Supreme Court on applications for leave to appeal. Mr. Lynch then diagnosed and pronounced the compensation reduction issue officially "dead". He also discussed the Michigan Tax Tribunal decision in the Jones & Laughlin case which allowed direct allocation of the payroll component of the tax base of a multi-state taxpayer where the sales factor of the three factor apportionment formula greatly exceeded the property or payroll factors.
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After the foregoing developments were discussed, Commissioner Martin was asked whether an express amnesty program for the payment of taxes without criminal or civil penalties was in place. She identified legislation which had been introduced by Representative Bryan which would waive criminal and civil penalties and allow the Com missioner to waive interest under certain circumstances. However, those in attendance at the meeting agreed that Michigan has maintained an informal amnesty program for many years, but that decisions are still made on a case-by-case basis. Fritz Gould was questioned about the impact which the Michigan Inheritance Tax has in encouraging Michigan retirees to change their legal residence to states not having an inheritance tax. Mr. Gould pointed out that the Michigan Income Tax and the Intangibles Tax are probably also sufficient reasons for people to consider changing their residency, and he thinks that the inheritance tax shares a disproportionate amount of blame for this phenomenon. He also observed that spouses and children don't pay the major portion of the Michigan Inheritance Tax since the tax rates and exemptions applicable to those persons shield them somewhat from the tax. The bulk of the tax revenue is paid by distant relatives, such as nieces, nephews and cousins. Commissioner Martin and Assistant Commission Hoatlin discussed the fact that use of statistical sales and use tax audits, where random sampling of transactions by a taxpayer having numerous transactions is utilized, was being explored and perfected. Commissioner Martin advised the group that a suggestion made by Sam McKim that the State enact legislation authorizing localities to enact local option taxes (taxes other than property or income taxes) was not under active consideration, although it had been discussed as an alternative to the economic plight of some municipalities whose tax bases are shrinking due to the shrinkage of business property tax base and/or flight by income taxpayers. Respectfully submitted,
Patrick R. Van Tiflin, Recording Secretary
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ERRATA
We regret that the following information was omitted from Frank Cornelius' article, "Pension Issues in Collective Bargaining", which appeared in 10 MI Tax L.J. No. 5, at p13: p22, last paragraph, after Bencivenga v Teamsters, CCH PPG (WD Pa, 1984), insert:
23,660X
Under Section 301(a)(2) of the Retirement Equity Act of 1984, rewriting ERISA § 204(g), a plan may not be amended after July 30, 1984 (April 1, 1985 for certain collectively bargained plans) to eliminate an early retirement benefit which accrued before the amendment. p26, note 26 should read: UAW v HK Porter Co 114 BNA PR D-1 (ED Mich, 1976).
